What Is FDIC Insurance? How Can It Protect My Accounts?

Daniel Penzing
Written by
Last update:

What Is the FDIC?

The FDIC problem or not to be, is among the most common conundrums facing consumers in search of a financial institution, including savings and vault accounts. There are several thousand banks in the United States alone, and many more that have yet to be chartered. Exactly how can a consumer go about deciding which to choose for their cash, and what does FDIC insurance mean?

The Federal Deposit Insurance Corporation (FDIC) was born in 1933 as a two-part response to the banking crisis that precipitated the Great Depression’s crash. When large numbers of banks failed in the early weeks of the stock market crash, the market crash cascaded into a severe banking crisis.

The crash was followed by a steady succession of bank failures. Rather than a slow, steady decline, banks began to fail by the hundreds over a span of 18 months.

The collapse in prices in the stock market, combined with the initial series of bank failures, made it difficult for many people to get cash. Some people were forced to sell their stocks at deep discounts to meet their obligations.

In an attempt to stabilize the banking crisis, Congress passed the Glass-Steagall Act, which was signed into law by President FDR. Title II of Glass-Steagall was designed to protect bank deposits. Section 16 of Title II established the FDIC.

What Is FDIC Insurance?

Not so long ago, fronting the bill on your own was the only option when it came to financial products. In the event you ever had to file a claim or face financial hardship, you, and only you, would have to take care of it.

Of course, that was then and this is now. In a financial landscape that has seen great changes over time, there are not one but several new protections in place for people who choose to use their hard-earned money to deposit.

These rules of coverage that are in place include the Federal Deposit Insurance Corporation (FDIC).

If you didn’t know already, the FDIC is a US government agency that was established way back in 1933 in order to protect individuals from losing their money that they deposit in a bank. It works by insuring individual bank accounts up to a certain limit. Any loss or fraud incurring on a covered account is handled by the FDIC so that you’re not left having to pay for your own losses.

But what is the FDIC insurance limit, and how can it protect your accounts? Let’s take a closer look.

How Does It Work?

FDIC stands for the Federal Deposit Insurance Corporation, an organization created in 1933 as part of the New Deal under President Franklin Delano Roosevelt. The FDIC was created because bank failures had been so bad throughout the Great Depression.

The main goal of the FDIC is to protect FDIC-insured depositors in case their bank fails. This includes individual bank accounts and retirement accounts insured by FDIC.

That means as long as your account is FDIC insured, the government basically guarantees that you will get your money back. Because of this, many people continue banking with an FDIC-insured bank even if they can find a better rate of return elsewhere.

The FDIC insures all depositors, not just those with FDIC insured accounts. That includes depositors of business accounts.

Over-the-counter stocks, bonds, and mutual funds are also insured by the FDIC.

On the other hand, stocks, bonds, and mutual funds held in a brokerage account are not insured by the FDIC.

What About My Retirement Account?

Protection for Stocks and Other Securities

Final Thoughts

FDIC insurance is hugely important to the financial safety of the people who bank in the United States. It ensures that even if your bank fails, your money is safe.

The Federal Deposit Insurance Corporation is an independent organization that protects your money. Your bank will automatically be insured, but you can also take steps to receive additional protection.

The FDIC has a website with information about protecting your accounts and what to do in case of a bank failure.