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- The FDIC is a federal government agency that insures deposits so you don't lose your money if your bank fails.
- You don't need to apply or pay for FDIC insurance; if you open an account with an FDIC-insured institution, your money is insured automatically.
- The FDIC insures deposit accounts for up to $250,000 per depositor, per institution, per ownership category.
- If your bank fails and closes, the FDIC will either move your money to a different bank or send you a check within a few days.
- Read our picks for the best FDIC-insured high-yield savings accounts right now »
The United States is entering a recession amid the coronavirus pandemic. You may be worried about banks failing during the recession, just as many institutions did during the 2008 financial crisis.
It isn't clear how strong of an impact the coronavirus will have on banks. But if your institution is FDIC-insured, then all or most of your money should be safe.
What is FDIC insurance?
The Federal Deposit Insurance Corporation, or FDIC, is a federal government agency that provides insurance to banks. If an insured bank fails, then you won't lose the money you keep at that institution.
FDIC insurance works similarly to other types of insurance. If you have renters insurance and your home is damaged in a natural disaster, your insurance will cover the costs of damages up to a certain dollar amount. If your bank has FDIC insurance and shuts down, the FDIC will give you the money you stored in the account up to a certain dollar amount.
As with any insurance, you hope you'll never have to use your FDIC insurance. It only kicks in if your bank fails and closes.
(Keep in mind, this is not the same as bank branch locations closing due to social distancing during the coronavirus outbreak. FDIC insurance only becomes relevant if the entire institution closes.)
Why do you need FDIC insurance?
Why is FDIC insurance necessary in the first place? Couldn't you just withdraw all your money if your bank is closing?
Large banks actually only keep about 10% of deposits in reserve, and small banks hold onto even less. They use the rest of members' deposits to provide loans so they can earn money from interest paid on those loans.
So if your bank closes, the bank couldn't give everyone their money at once - they simply don't have the funds on hand. Because you can't access all your money immediately, the FDIC gives you the money later.
How to get FDIC insurance
You don't have to apply or pay for FDIC insurance. If you open an account with an FDIC-insured bank, you are automatically insured.
Before banking with an institution, make sure the bank is insured by the FDIC. You should be able to find this information on the bank's website, or you can check on the FDIC BankFind page.
The FDIC has limits on how much it will insure
The FDIC insures deposit accounts, including checking, savings, and money market accounts, as well as certificates of deposit. The agency doesn't cover any money you lose in investment accounts.
The FDIC typically insures up to $250,000 per depositor, per banking institution, per ownership category. That sounds complicated, so let's look at what that means.
First, let's get clear on ownership categories. An individual account is in one ownership category, and a joint account is in another ownership category (you can see the full list of categories here). Let's say you have both. In your individual account, you're insured for $250,000. In your joint account, each person is insured for $250,000, coming to $500,000 total. If your bank closed down, you would receive the total $750,000.
However, here's an example in which all of your savings are in the same ownership category: If you have $250,000 or less in a combination of a CD, checking account, savings account, and money market account with your bank and the institution goes under, you will receive all your money from the FDIC. If you have, say, $300,000 in all those accounts, you'll receive $250,000 back and lose $50,000.
What if you want to keep more money in the bank than the FDIC will insure? In this case, you can open an additional account at a separate bank. You will be insured separately at each separate banking institution.
What will the FDIC do if your bank closes?
If your bank fails, the FDIC will look into selling the institution's assets to a successful bank. In this case, you'd keep your money at a different bank.
If no bank wants to take on the assets, the FDIC would mail you a check for the amount of your insured deposits, usually within a few days.
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