About the FDIC

The Federal Deposit Insurance Corporation (FDIC) is a corporation created by the U.S. federal government during the Great Depression to provide deposit insurance for customers of commercial banks. Currently, the maximum insurance amount is generally $250,000 per depositor per bank for regular accounts, and up to $250,000 for Individual Retirement Accounts (IRAs).

The funds the FDIC uses for payouts mainly come from insurance premiums paid by FDIC-insured banks, not from the U.S. government. When a payout is made, it is generally on a 1:1 basis, covering principal and interest up to the insurance limit. So far, the FDIC has not failed to pay insured depositors, and with the backing of the U.S. government, it is generally considered very reliable. If a bank fails or goes bankrupt, the FDIC will take over the bank’s assets and reimburse the portion covered by FDIC insurance.

One quick note: banks cannot simply choose to join the FDIC whenever they want. Whether they can participate, and how much they pay in premiums, is determined by the insurer, similar to how auto insurance works. Some asset distribution requirements are listed below. If a bank’s asset profile changes in a way that increases its risk of failure, it may also receive a warning from the FDIC.

  • Well capitalized: 10% or higher
  • Adequately capitalized: 8% or higher
  • Undercapitalized: less than 8%
  • Significantly undercapitalized: less than 6%
  • Critically undercapitalized: less than 2%

Besides the FDIC, the U.S. also has another deposit insurance agency: the National Credit Union Administration (NCUA). It provides protection through the National Credit Union Share Insurance Fund, also with a $250,000 limit. This mainly applies to credit unions across the U.S., so if you keep money at a local credit union, it’s best to consider one that carries this insurance.

What the FDIC Covers

One important thing to note is that even if a bank is an FDIC member and has deposit insurance, not every product offered by that bank is protected by the FDIC. Generally speaking, deposit accounts are covered, while investment accounts are not.

The FDIC does cover the following:

  • The most common example is a checking account. Demand deposits (checking accounts of a type that formerly could not legally pay interest), and negotiable order of withdrawal accounts (NOW accounts, i.e., savings accounts that have check-writing privileges):
  • Another common example is savings accounts and money market deposits. Savings accounts and money market deposit accounts (MMDAs, i.e., higher-interest savings accounts subject to check-writing restrictions):
  • Time deposits including certificates of deposit (CDs): these are the fixed-term deposits many of us are familiar with
  • Cashier’s checks and interest checks issued by the bank. Outstanding cashier's checks, interest checks, and other negotiable instruments drawn on the accounts of the bank accounts denominated in foreign currencies:

The FDIC does not cover the following:

  • The most common examples are investment products such as stocks, bonds, and funds. If these crash, they generally are not protected by the FDIC. Stocks, bonds, and mutual funds including money funds.
  • U.S. government investments are also not included. Investments backed by the U.S. government, such as Treasury securities
  • Safe deposit boxes

So if you want FDIC protection, it’s best to make sure the account being offered fits the categories above. Of course, the safest approach is to confirm with customer service when opening the account and to check whether the specific terms mention FDIC coverage.

In addition, FDIC protection applies to all customers who hold the covered products at a bank. Even if you are not a U.S. citizen, you are still protected.

FDIC Coverage Limits

FDIC insurance has a maximum limit. Amounts below the limit are reimbursed 1:1—in other words, if you lose a covered deposit, the FDIC makes you whole up to the limit. The limit is $250,000 per bank, per account category. There are six account categories listed below:

  • Single accounts (checking, savings). Single accounts (accounts not falling into any other category)
  • Retirement accounts (such as IRAs). Certain retirement accounts (including Individual Retirement Accounts (IRAs) )
  • Joint accounts (owners must have equal withdrawal rights). Joint accounts (accounts with more than one owner with equal rights to withdraw)
  • Revocable trust accounts (containing the words "Payable on death", "In trust for", etc.)
  • Irrevocable trust accounts
  • Employee Benefit Plan accounts (deposits of a pension plan)
  • Business accounts. Corporation/Partnership/Unincorporated Association accounts
  • Government accounts

For example, if you have 2 checking accounts and 1 savings account at Chase, even though the three accounts are separate, the $250,000 limit is shared across all three. That means any amount above $250,000 in total across those three accounts would not be protected by the FDIC. But if you also have an IRA at Chase, that IRA has its own separate $250,000 coverage and does not share the limit with the other accounts. If you have similar accounts at Bank of America, those are separate from your Chase accounts. For example, if you have checking accounts at both Chase and Bank of America, each bank’s $250,000 limit is calculated independently. The limit follows the account owner, so if you and your partner each open separate accounts (not joint), each person has a separate $250,000 limit.

If this feels complicated, you can use the calculator provided by the FDIC to estimate how much of your money is protected at a particular bank.

Here is a sample scenario I modeled:

  • I have two checking accounts at Chase: $200,000 and $150,000
  • I also have a joint account with LD that holds $800,000
  • I also have an IRA with $400,000

As you can see, individually owned checking accounts are combined and subject to one $250,000 limit; joint accounts are calculated separately for each person and are independent from individual checking accounts; IRAs are also calculated separately.

How to Check Whether an Account Has FDIC Insurance

The easiest way to confirm whether a bank is an FDIC member is to check directly on the bank’s official website and see whether it says the bank is an FDIC Member. The image below shows the footer of Bank of America’s website.

Of course, you can also use the FDIC’s own search page:

Generally speaking, if a bank is an FDIC Member, that means its designated products are covered by the FDIC.

Summary

The FDIC is essentially an insurance program, similar in concept to property insurance, that protects your bank deposits. If you need a place to keep cash, I strongly recommend choosing accounts with FDIC insurance and staying within the coverage limits. If possible, choosing one of the large national banks in the U.S. is often a good option. If you are putting a large amount into CDs or checking accounts, it may be better to spread the money across multiple banks. That said, if you have that much cash sitting around and are not buying a house or investing in stocks, that’s probably not how most Chinese people would do it...