Who Is Protecting Your Money? The Role of the FDIC
Updated: Mar 13
Has the failure of Silicon Valley Bank (SVB) got you worried about your money? Are you contemplating moving your money from the bank to a toasty location under your mattress? Before you do that, read this article!
Who Is Protecting Your Money?
I bet you've seen "FDIC" in all your communications from your bank but never paid close attention to it. So who exactly is the "FDIC"?
The Federal Deposit Insurance Corporation (FDIC) is an independent U.S. government agency that provides deposit insurance to protect depositors in the event that their bank fails. The FDIC was created in 1933 in response to the widespread bank failures that occurred during the Great Depression. Its mission is to maintain public confidence in the U.S. financial system by insuring deposits, supervising banks, and promoting sound banking practices.
Ok, that sounds great, but what exactly does it mean?
The FDIC protects your money by insuring deposits up to a certain amount. Currently, the standard deposit insurance amount is $250,000 per depositor, per insured bank, for each account ownership category. This means that if your bank were to fail, the FDIC would provide insurance coverage up to $250,000 for each of your deposit accounts at that bank.
Great! Your money is protected up to $250K! But it's important to understand some of the language used to describe the protection your money receives.
For each TYPE of account at each bank, you are protected up to $250K. That means, if you have more than one type of account at a bank, you will get up to $250K for each account. For example, if you have 2 savings accounts at the same bank, you will only receive up to $250k, but if you have a savings account and a money market account, you will get up to $250K for EACH account. Let that sink in.
The FDIC protects all types of deposits, including checking accounts, savings accounts, money market deposit accounts, and certificates of deposit (CDs). It does not, however, insure investments such as stocks, bonds, mutual funds, or annuities. These investments are protected by the SIPC (Securities Investor Protection Corporation). In addition, credit unions are protected by the NCUA (National Credit Union Administration).
By conducting regular examinations of banks, the FDIC promotes sound banking practices to ensure they are operating safely and soundly. It also provides resources to help consumers make informed decisions about their banking relationships and to protect themselves against fraud and identity theft.
A failed bank is a scary proposition. Customers of SVB endured a harrowing few days when things were still unclear. But it's comforting to know that your money is protected in the event that your financial institution fails.
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