what is an fdic insured account 
an fdic insured account is a bank or thrift account covered by the federal deposit insurance corporation fdic an independent federal agency responsible for safeguarding customer deposits in the event of bank failures the maximum insurable amount in a qualified account is 250 000 per depositor per fdic insured bank and per ownership category 1understanding an fdic insured accountan fdic insured account means if you have up to 250 000 in a bank account and the bank fails the fdic reimburses any losses you suffered for individuals any sum that exceeds 250 000 for a single account type e g individual joint etc may need to be spread among multiple fdic insured banks to understand how and why the fdic functions it is critical to understand how the modern savings and loan system works modern bank accounts are not like safe deposit boxes depositor money does not go into an individualized vault drawer to wait idly until future withdrawal instead banks funnel money from depositor accounts to make new loans in order to generate revenue from the interest the federal government requires most banks to keep only 10 of all deposits on hand meaning the other 90 can be used to make loans in other words if you made a 1 000 bank deposit your bank can actually take 900 from that deposit and use it to finance a car loan or a home mortgage this kind of banking is called fractional reserve banking since only a small fraction of the total deposits are kept as reserves at the bank fractional reserve banking creates extra liquidity in the capital markets and helps keep interest rates low but it can also create an unstable banking environment it is possible the bank s customers could simultaneously request more than 10 of their money back at any one time when too many depositors ask for their money back a so called bank run the bank must turn away some customers empty handed other depositors might lose confidence and ask for their money back too fearing they will not be able to recoup their savings often this can create a contagion like effect that spreads to other banks triggering systemic bank panics fdic insured account requirementsif an fdic insured bank cannot meet deposit obligations the fdic steps in and pays insurance to depositors on their accounts once declared failed the bank itself is assumed by the fdic which sells the bank s assets and pays off any debts owed when a bank fails account holders get their funds back almost immediately up to the insured amount if their deposits exceed that limit they will have to wait until the fdic sells off the bank s assets to recoup any excess a qualified account has to be held in a bank that is a participant in the fdic program participating banks are required to display an official sign at each teller window or station where deposits are regularly received depositors can verify whether a bank is an fdic member through a search at fdic gov 2membership in the fdic is voluntary with member banks funding the insurance coverage through premium payments basically all demand deposit accounts that become general obligations of the bank are covered by the fdic the type of accounts that can be fdic insured include negotiable orders of withdrawal now checking savings and money market deposit accounts in addition to certificates of deposit cds credit union accounts may also be insured for up to 250 000 if the credit union is a member of the national credit union administration ncua accounts that do not qualify for fdic coverage include safe deposit boxes investment accounts containing stocks bonds etc mutual funds and life insurance policies individual retirement accounts iras are insured up to 250 000 as are revocable trust accounts although coverage on a revocable trust extends to each eligible beneficiary examples of fdic insured accountsfdic guarantees deposits up to 250 000 per account per person for joint accounts each co owner receives the full 250 000 of protection along with the many other benefits of a joint account a couple or partners with a joint account with 500 000 on deposit would be fully protected multiple accounts held in the same bank under the same account holder s name are added together for purposes of determining the amount of insured deposits so a person with two accounts at the same bank totaling 300 000 would have 50 000 unprotected however deposit limits are separate for each different bank even for the same owner say someone has 200 000 at bank a and an additional 150 000 at bank b even though their total deposits exceed 250 000 they are considered fully covered as long as both banks are fdic insured if this individual transfers the 150 000 to bank a they lose coverage on 100 000 since their total deposit at bank a is now 350 000 such insurance over deposits benefits savers in that they need only worry about finding the best interest rate on a savings account rather than whether their money is safe history of fdic insured accountsthe fdic was created as part of the banking act of 1933 after a four year period that saw nearly 10 000 u s banks fail or suspend operations most of these closures resulted from a run on the bank banks did not possess enough money in their vaults to meet depositors withdrawal demands so they had to close their doors leaving many families without their savings the purpose of the fdic was to restore the faith of panicked americans following the stock market crash of 1929 and the onset of the great depression conceptually the fdic serves as a bulwark against future banking panics the fdic insures or guarantees the value of all bank demand deposits up to a certain amount with the total figure covered steadily growing since its inception in october of 2008 congress increased the amount covered by fdic deposit insurance from 100 000 to the current 250 000 prior to 2006 the fdic financed itself through the bank insurance fund bif and the savings association insurance fund saif these were basically composed of insurance premiums the fdic charged to member banks for housing and safekeeping their funds in 2005 president george w bush signed the federal deposit insurance reform act to merge the competing funds since then all premiums are left in the deposit insurance fund dif from which all fdic insured deposits are covered special considerationsthe fdic reserve fund has never been fully funded in fact the fdic is normally short of its total insurance exposure by more than 99 congress granted the fdic the power to borrow up to 500 billion from the department of the treasury making the system effectively backed by the federal reserve in other words if the fdic exhausts its other options the government will step in to provide further financial backing the fdic can also borrow money from the treasury in the form of short term loans this occurred during the savings and loan s l crisis in 1991 when the fdic was forced to borrow several billion dollars to cover the failing thrifts accounts advantages and disadvantages of fdic insured accountsaccording to the fdic no depositor has lost a cent of insured funds as a result of bank failure since its insurance debuted on jan 1 1934 measured on the merits of preventing bank panics the fdic has been a resounding success the u s economy has not suffered a legitimate banking panic in the 80 plus years of the fdic the fdic isn t loved by everyone though detractors believe forced deposit insurance creates moral hazard in the banking system and encourages depositors and banks to engage in riskier behavior they argue that customers do not need to care which bank makes safer loans if the fdic is going to bail them all out anyway 