Am I covered by FDIC in case my bank fails?

The Great Bank Run

Banks in America failed like nine pins from 1930–31 during The Great Depression. With the collapse of banks and no government help, millions of people lost their life savings in the crisis. The bank failure was so swift that around 9,000 banks failed in no time, and depositors lost around USD 7 billion. It was a period of widespread panic, and the confidence in the US banking system was at an all-time low. This was also the time when the government did not insure the deposits in the bank. So, if someone had USD 5000 in the bank and the bank collapsed, that person would have lost all of his money. The US banking system was on the brink, and something needed to be done to restore normalcy and avoid such failures in the future. The president of the time, President Franklin D. Roosevelt, and Congress responded with a stroke of genius by creating a new government agency.

FDIC is born

On June 16, 1933, Franklin D. Roosevelt signed the Banking Act of 1933 into law, thereby creating a new government agency called the Federal Deposit Insurance Corporation (FDIC). The agency’s purpose was to restore confidence in the US banking system and prevent bank failures, but its most important agenda was to insure deposits (checking, savings, CDs, money market, etc.) in the event of a bank failure. However, it doesn’t cover investments like stocks, mutual funds, safe deposit boxes, crypto assets, etc.

How FDIC Insurance works

Deposits are insured up to at least $250,000 per depositor, per FDIC-insured bank, per ownership category¹.

Let’s say John Doe has the following deposits in different banks.

• John is covered by at least 250,000 USD in Chase Bank for all his accounts whose ownership category is “single”. John can have multiple accounts with “single” ownership type. FDIC would add the balance in all his accounts and cover them by at least 250,000 USD.
• FDIC also covers the ownership interest of John in his “joint” account by at least 250,000 USD in addition to his “single” account as the ownership type is different.
• Jane’s ownership interest in the joint account is also covered by at least 250,000 USD.
• John is also covered by at least 250,000 in American Express, as that is a different bank.

Has anybody lost money since FDIC

Such is the magic of FDIC insurance that no insured depositor has ever lost money since its inception in 1933². So, in all probability, John and Jane should not lose any money if both of the above banks fail.

How do I know if my financial institution is backed by FDIC

Use the FDIC BankFind suite to find out if the bank is backed by FDIC.

What FDIC does not cover

• FDIC doesn’t cover investments like stocks, mutual funds, safe deposit boxes, crypto assets, etc. It only insures deposits.
• You are not covered, if you invest in stocks or mutual funds through an institution that is backed by FDIC.

References

• https://www.fdic.gov/resources/deposit-insurance/faq
• https://www.fdic.gov/bank-failures/borrowers-guide-fdic-insured-bank-failure
• https://www.ssa.gov/history/bank.html