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What Is FDIC Insurance?

Updated
Kevin Payne
Cole Tretheway
By: Kevin Payne and Cole Tretheway

Our Banking Experts

Eric McWhinnie
Check IconFact Checked Eric McWhinnie
Many or all of the products here are from our partners that compensate us. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page. APY = Annual Percentage Yield

Does the thought of bank failure bring to mind the image of panicked customers hammering on a bank's door? If so, you're not alone. Banking customers are right to wonder how safe bank accounts are, really. The answer can be found in four simple words: Federal Deposit Insurance Corporation (FDIC).

If your bank is FDIC insured -- and it really should be -- you're protected in the unlikely event disaster strikes, collapsing the company that holds your savings.

But what is FDIC insurance? Read on to learn more about how FDIC insurance coverage can protect you and your savings from harm.

What is FDIC insurance?

FDIC insurance protects you from losing bank account deposits to bank failure.

The FDIC is an independent agency of the federal government, created in response to the catastrophic bank failures of the 1920s and '30s. It insures bank and thrift institution deposits so as to minimize the economic impact if a bank or thrift institution fails. If your bank or credit union is one of the many financial institutions covered by FDIC insurance, you know you have a measure of protection. Making sure your financial institution carries FDIC insurance is one of the best ways to protect your money.

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Is my bank account FDIC insured?

Check if your bank and branch are insured quickly and easily online. The FDIC BankFind Suite lets you plug in the name of your bank and click search.

How does FDIC insurance work?

Accounts covered by FDIC insurance are covered for up to $250,000 per eligible account if the bank goes belly up, whether the bank is brick and mortar or online.

Example: Say you have $250,000 in eligible accounts at two different banks and they both fail. The entire $500,000 would be returned to you. This is because coverage limits are $250,000 for each ownership category (which we'll explain below) as well as each insured location.

FDIC is funded by financial institutions. Institutions pay through the FDIC's Deposit Insurance Fund. Tax dollars are not used to fund the FDIC.

The FDIC has two primary responsibilities:

  • To pay the customers of failed financial institutions up to the insurance limit.
  • To act as the "receiver" of a failed bank, assuming the task of selling assets and settling its debt, including claims for deposits that exceed the insured limit.

The FDIC's goal is to keep the American banking system safe and secure.

What can I expect if my bank fails?

Bank failure stresses people out, and for good reason -- people don't want to lose their life savings. In 2023, four American banks failed, totaling hundreds of billions of deposits. In each case, the FDIC acted quickly to protect deposits.

Here's what you can expect if your FDIC-insured financial institution fails:

  • You hear through the grapevine or on the news that your bank has failed. The FDIC, which watches banks like a hawk, has already swooped in -- perhaps so quickly following the failure that you didn't even notice. In fact, you may not know your bank has failed until you receive a letter in the mail.
  • The FDIC sells the failed bank as quickly as possible to another healthy bank. Say the bank shuts down on Friday. It is not at all unusual for the FDIC to move so fast that the bank is reopened by Monday morning.
  • This entire time you will most likely be able to write checks, use your debit card, and take money from ATMs. (At least up to your insured limits.) Direct deposits will be rerouted to your new bank.

Federal law requires the FDIC to pay deposit insurance "as soon as possible." Although that instruction sounds vague, the reality is that the FDIC almost always pays depositors within a few business days, and it often pays the day after an insured bank closes.

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Read bank reviews

If you're looking for more in-depth information on banks, credit unions, and similar financial institutions, here are a few we've reviewed:

What accounts does the FDIC cover?

These financial products are covered by FDIC insurance in the event of bank failure:

  • Checking and savings accounts
  • Money market accounts
  • Certificates of deposit (CDs)

The FDIC also covers some prepaid cards, negotiable order of withdrawal (NOW) accounts, and other products your insured bank officially offers.

The FDIC insures deposits up to $250,000 per ownership category. So you can deposit $250,000 in category A and $100,000 in category B at the same bank, and your $350,000 total deposits would be insured 100%. See all ownership categories below.

Single accounts

Checking, savings, and money market accounts are all categorized as single accounts. So if you deposit $200,000 in a checking account and $200,000 in a savings account at the same bank, only $250,000 of your $400,000 deposit would be insured.

Retirement accounts

Individual retirement accounts (IRAs) and 401(k)s are both categorized as retirement accounts. So if you deposit $200,000 in an IRA and $200,000 in a 401(k) at the same bank, only $250,000 of your $400,000 deposit would be insured.

Under the same ownership category fall self-directed defined contribution plans, self-directed Keogh plan accounts, and Section 457 deferred compensation plan accounts.

Joint accounts

Deposit accounts owned by two or more people are categorized as joint accounts. These are insured up to $250,000 per account owner. So two owners would be insured up to $500,000, and three owners would be insured up to $750,000.

Other ownership categories 

The following ownership categories are insured separately:

  • Revocable trust accounts
  • Irrevocable trust accounts
  • Employee benefit plan accounts
  • Corporation, partnership, or unincorporated association accounts
  • Government accounts

The FDIC insures each ownership category up to $250,000 per bank, per account owner.

What accounts does the FDIC not cover?

These financial products are not covered by FDIC insurance:

  • Stock investments
  • Bond investments
  • Mutual funds
  • Crypto Assets
  • Life insurance policies
  • Annuities
  • Municipal securities
  • Safe deposit boxes or their contents
  • U.S. Treasury bills, bonds, or notes

Bear in mind that although FDIC insurance does not cover the loss of U.S. treasury bills, bonds, or notes, these investments are guaranteed by the U.S. government.

What happens when more than one person owns an account?

FDIC insurance covers each account owner up to $250,000. So if you share a savings account with your spouse and there is $700,000 in it, each of you will be covered for up to $250,000 for the loss of that account, for a total recovery of $500,000.

But let's say you share that savings account with your spouse and two adult children, and you all have an equal stake in it. Each of you would be insured for $250,000. Because $250,000 x 4 = $1 million, you would easily have enough coverage to recover the entire $700,000 balance.

How do I know if my bank is FDIC insured?

You can check whether your bank is FDIC insured on the FDIC BankFind Suite webpage. Or, call the FDIC at 877-ASK-FDIC (877-275-3342) and ask to speak with a deposit insurance specialist. They will be happy to let you know whether your bank provides the coverage you need.

You can also call the bank manager and ask if your deposits are protected by FDIC insurance. Or, search your bank's website -- it'll probably advertise it somewhere. 

If you want to open an FDIC-insured account, get started with one of our lists of top-rated accounts. In most of our in-depth reviews, we share whether an account is FDIC-insured:

If your financial institution fails and it is FDIC insured, there is no reason to panic. Since January 1, 1934, the first day FDIC insurance was in effect, no depositor has lost a single penny of insured funds due to bank failure. That's a pretty impressive track record and a good reason to make sure your bank is FDIC insured.

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FAQs

  • Yes. But it's extremely unlikely. National banks are some of the safest places to put cash.

  • You can keep deposits over $250,000 safe by spreading them across banks and account types. For example, you could split $350,000 by depositing $250,000 into Bank A and the remaining $100,000 into Bank B. That way, both deposits would be fully insured by the FDIC.

  • Not directly, no. The FDIC only insures bank deposits. However, some banking apps like Chime partner with FDIC-insured banks to protect customer deposits, which is similar. Peer-to-peer payment apps like Venmo typically don't offer anything close to FDIC insurance.

  • No. The FDIC only insures deposits in banks and savings institutions, as per the FDIC website. However, some institutions that offer crypto products insure them separately. Find out whether your institution insures crypto deposits by reaching out to a representative via phone or email.

  • No. If your bank is FDIC insured, your deposits will be automatically covered up to $250,000 per bank, per ownership category.

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