Money IQ: What is FDIC Insurance?

Money IQ
By Karl Hjelvik

What is FDIC Insurance?

This week’s Money IQ examines Federal Deposit Insurance Corporation (FDIC) insurance, its background, coverage and who pays for it.

During the 1930’s, the financial markets experienced a lot of turmoil and it was common to have runs on a bank because there was no insurance on customers’ deposits.

As a result, the FDIC was created as part of the Glass-Steagall Act of 1933. Since then, the FDIC has provided deposit insurance to guarantee the safety of deposits at any member bank.

Credit Unions are not covered by the FDIC, however, they are covered by the National Credit Union Administration (NCUA.)

The FDIC insurance limit has increased from $2,500 in 1934 to $250,000 today. The insurance covers all types of deposit accounts, including checking or demand deposits, savings, money markets, certificates of deposit (CDs), retirement accounts (IRAs), and trust accounts. It also covers outstanding cashier’s or interest checks and any other negotiable instruments drawn on the accounts of a bank.

It does not cover contents of safe deposit boxes, stocks, bonds or investments. The insurance is up to $250,000 per depositor per bank.

For example, a husband and wife have joint ownership of all their deposit accounts, but since there are two signers (depositors), they are covered up to $500,000.

FDIC member banks pay the premium through their annual membership fee to the FDIC so coverage is automatic and there is no cost to you.

Editor’s note: Karl Hjelvik is the Vice President Internal Auditor at Los Alamos National Bank. He has been with LANB since 1996.

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