In the 1930s in response to the financial collapse, deposit insurance became a necessity. Bank runs became commonplace. Financial institutions failed. And people were left with little confidence in the banking system. That’s when the FDIC was created to protect consumer and company funds.
Fast forward to today. The FDIC is still in full swing creating a safe environment for your deposits and providing you confidence in the banking system.
While it has remained a stable insurance source, there are limits and regulations for what they insure making it important for you to be informed.
What is FDIC?
Congress created the “The Federal Deposit Insurance Company” following the aftermath of the Great Depression. The goal? To help the economy regain stability.
Despite some objections that an agency like the FDIC would create irresponsibility and thereby instability, our economy has benefited in the long run.
Rather than receiving funding from Congress, the FDIC receives premiums paid by insured banks. For the most part it is a self-sustaining entity that has contributed decades of support to the economy.
What does it do?
The FDIC minimizes the impact of bank solvency on the economy. It provides a way forward for the customers and for the remaining assets and liabilities of banks.
The good news is that in the history of the FDIC no one has remained uncompensated for insured dollars. But the FDIC doesn’t just clean up messes, it also helps prevent them.
They keep banks accountable to laws meant to protect consumers (for instance, the Fair Credit Reporting Act). And by monitoring around 4,000 banks across the country, they can address problems before they become even bigger problems.
So by insuring trillions of dollars across the U.S., the FDIC provides a stable basis for financial institutions and their constituents.
How does it protect my deposits?
Deposits are protected by through FDIC insurance. However, this insurance does not protect your investments purchased through the institution.
All FDIC banks pay insurance premiums which are deposited in the “Deposit Insurance Fund”. These funds are used to resolve bank failure and to protect your deposits in the event of failed banks. The goal is to have deposit funds available to customers within 1-2 business days.
In the event of a bank solvency, the FDIC most often resorts to selling the assets and liabilities to another bank. This bank then assumes the previous bank’s customers and makes their funds available again.
However, the FDIC only insures deposits up to $250,000 meaning that you may need to find more coverage.
How do I get full coverage?
While the FDIC states that it covers deposits up to $250,000, you’re really not limited to that amount. There are many ways to get insurance for larger deposits.
To get increased insurance over one account, joint accounts and beneficiaries are an easy solution. Joint accounts insure each member up to $250,000 meaning you can have $500,000 insured.
Added beneficiaries are insured up to $250,000 per beneficiary. So the amount insured multiplies based on each owner and beneficiaries.
The FDIC also states that it covers $250,000 per ownership category. So while a checking and savings account would be in the same ownership category, a retirement fund would be in a different ownership category. This allows for several methods of coverage within the same bank.
Another option is to spread out deposits to several FDIC insured banks. Not sure if all your deposits are insured? The FDIC has a resource called EDIE to help bankers and customers know what funds are insured.
The point of all of this is that you do not have to settle for uninsured deposits. You have many options to be sure your savings are safeguarded. All that said keeping track of several banks and multiple accounts (not to mention all the regulations) is complicated.
That’s where ADM can help. We specialize in making FDIC coverage simple and manageable for our customers. Visit our Deposit Management page for more details.
Want to learn more about how ADM can help you get full insurance coverage? Call us at 414-961-6600.
Barba, Robert. “6 Ways to Insure Excess Deposits.”Bankrate(blog), January 25, 2018. Accessed April 3, 2018. https://www.bankrate.com/banking/savings/6-ways-to-insure-excess-deposits/.
Barrington, Richard. “How Can I Protect Amounts of More than $250,000?”Money Rates(blog), April 4, 2016. Accessed April 3, 2018. https://www.money-rates.com/ask-the-expert/higher-fdic-insurance-limits.htm.
Cooley, Thomas F. “A Captive FDIC.”Forbes(blog), April 15, 2009. Accessed April 3, 2018. https://www.forbes.com/2009/04/14/sheila-bair-banks-insurance-opinions-columnists-fdic.html#5d61038c7ebe.
“Federal Deposit Insurance Corporation.” FDIC: Federal Deposit Insurance Corporation. Accessed April 04, 2018. https://www.fdic.gov/.
Forbes, Steve. “FDIC Doesn’t Insure Everything.”Forbes(blog), August 5, 2010. Accessed April 3, 2018. https://www.forbes.com/2010/08/05/bank-failure-bair-intelligent-investing-fdic.html#27237e89458d.
Tumin, Ken. “Maximizing Your FDIC Coverage with Beneficiaries.”Deposit Accounts(blog). Accessed April 3, 2018. https://www.depositaccounts.com/blog/2011/05/maximizing-your-fdic-coverage-with-beneficiaries.html.