Have you ever wondered what would happen if
your bank filed for bankruptcy or went out of business? Given the
current global financial turmoil, such an occurrence is certainly not
outside the realm of possibility. However, because of the Federal
Deposit Insurance Corporation (FDIC), you do not need to worry about
what would happen to your money if your bank goes bust. But what is the
FDIC and how can it protect you from losing your money if your bank
files for bankruptcy?
What Is The FDIC?
The Federal Deposit Insurance Corporation is an independent agency of the United States federal government that was created in 1933 in response to the thousands of bank failures that occurred during the Great Depression.So why is a bank failure such a big deal? When a bank fails, several negative events can occur:
- Depositors can lose their money held at the failed bank
- Investors in the failed bank can lose money on their investment
- People working at the failed bank can lose their jobs
- The failure can have negative effects on the financial system and overall economy
What Does The FDIC Do?
The FDIC is responsible for the promotion and preservation of the public confidence in the US banking system. In order to accomplish this goal, the FDIC:- Protects Your Deposits: The FDIC insures all bank deposits in US financial institutions up to $250,000. This means that if your bank goes bust, the FDIC will reimburse you for your bank deposits up to $250,000 per institution. It is important to note that since the beginning of the FDIC, no depositor has lost any FDIC insured money as a result of a bank failure
- Helps Ailing Financial Institutions: The FDIC seeks out, monitors and attempts to resolve any issues that pose a threat to bank deposits and the banks that hold them. For example, the FDIC will do research and analysis on individual banks to get a clear picture of their financial health. If the FDIC perceives a weakness, it will work with the bank to resolve the financial issue.
- Does Damage Control: When a bank goes out of business, the FDIC works to limit the negative effects that the bank failure has on other financial institutions and the overall economy.
What The FDIC Insures
Not all of the financial products that your bank sells are FDIC insured. FDIC insurance covers:- Deposits held in standard checking and savings accounts
- Certificates of deposit
- Money market deposit accounts
What The FDIC Does Not Insure
The FDIC insures bank deposits at US financial institutions. It does not insure:- Financial securities such as stocks and bonds
- Mutual funds
- Annuities
- Life insurance policies
- Most other non-deposit financial instruments and products
How To Ensure That Your Deposits Are FDIC Insured
It is very likely that your bank deposits will be covered by the FDIC. However, there are some tips that you should be aware of to make sure you don’t lose money if your bank goes bust. These include:- Only bank with reputable institutions that are insured. Make sure to ask your bank if they are FDIC insured. There should also be a sign posted on the bank building letting you know the bank is FDIC insured.
- Don’t keep more than $250,000 at the same bank. Although you may be able to get more than $250,000 back if the bank goes under, why risk it. Spread your funds across multiple reputable banks. This will also reduce your exposure to one bank.
- Only bank with financially healthy banks. The FDIC and other financial industry watchdogs put out regular reports on banks that are in financial trouble. It’s probably best to avoid banking with these banks.