FDIC Insured Account

Written By
Paul Tracy
Updated June 14, 2021

What is an FDIC Insured Account?

An FDIC insured account is a bank account whose balance is covered by the Federal Depository Insurance Corporation (FDIC) in the event of a bank failure.

How Does an FDIC Insured Account Work?

The FDIC is an agency of the U.S. government that insures deposits in banks and thrift institutions, supervises the risks associated with these insured funds and limits the repercussions on the economy when a bank or thrift institution fails.

The FDIC was created in 1933 as a result of the bank failures of the Great Depression.

The FDIC insures up to $100,000 of the following kinds of deposits at FDIC-insured banks and thrifts.

  • Checking accounts (including money market deposit accounts)
  • Savings accounts
  • Certificates of deposit (CDs)
  • Certain retirement accounts on deposit at a bank or thrift

The type of account a depositor holds affects the amount of FDIC coverage he or she may have. For example, let's assume you have three accounts at XYZ Bank: a checking account holding $10,000, a second checking account holding $50,000, and a $60,000 CD, for a total of $120,000 on deposit.

If the accounts are all single accounts (single accounts are deposit accounts owned by one person), then the FDIC adds the account balances together and insures the total up to $100,000. In our example, that means $20,000 of your deposits are uninsured.

The situation changes if you hold the accounts jointly with another person. Because the other person has a right to withdraw money from the account, his or her share is separately insured by the FDIC. This means that in our example, your half of the accounts ($120,000/2 = $60,000) would be insured up to $100,000 and the co-owner's half (the other $60,000) would also be insured up to $100,000. No portion of the accounts would go uninsured.

Alternatively, the FDIC insures certain trust accounts up to $100,000 for each qualifying beneficiary (spouses, children, parents, siblings, grandchildren). The coverage applies to beneficiaries who get the account's assets only when the owner dies. Thus, if you held the $120,000 in a trust for your three grandchildren, the full $120,000 would have FDIC insurance because each beneficiary (each grandchild) will receive $40,000 upon your death, and each would be insured up to $100,000.

It is important to note that FDIC coverage is $250,000 per depositor in the case of certain retirement accounts. Thus, if your $120,000 were in one or more self-directed retirement accounts (typically IRAs, SEPs, Keogh accounts, "section 457" deferred compensation accounts and self-directed defined contribution plans), then those account balances would be added together and insured up to $250,000 (leaving no uninsured balance).

Why Does an FDIC Insured Account Matter?

The FDIC's job is to maintain public confidence in the U.S. banking system by giving depositors a way out when a bank fails. During the Depression, when banks were failing frequently and there was no depository insurance, depositors were left with nothing when their banks went belly-up. The mere rumor of a bank having trouble created long lines of panicked depositors eager to withdraw their money just in case. This of course created a self-fulfilling prophecy, because banks generally make loans with their deposits and hence usually didn't have 100% of those deposits on hand to satisfy nervous withdrawals. According to the FDIC, "no depositor has lost a single cent of insured funds as a result of failure" since FDIC insurance took effect on January 1, 1934.

This is not to say that the FDIC is a catch-all for investors. It is important to understand that the FDIC does not insure stocks, bonds, mutual funds, life insurance policies, annuities, or any other types of investments that banks or thrifts may offer. The contents of a safe-deposit box are also not insured by the FDIC.

For more information about the FDIC, or to use the FDIC's Electronic Deposit Insurance Estimator (to determine whether you have adequate FDIC insurance) visit www.fdic.gov.

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