The Federal Deposit Insurance Corporation was established in 1933 to allow people who deposited money into bank accounts to feel confident that they were secure, even in cases where the bank itself is insolvent. "Runs on the bank" can be catastrophic for the economy as a whole, so this insurance is provided to make the public more confident in the institutions. The organization charges the banks insurance premiums to cover the costs of “bailing them out” in cases where they fail. The FDIC is backed by the full faith and credit of the US government, so even if the insurance charged is insufficient, the FDIC will still cover any losses.

Limits of FDIC Insurance

Until 2008, FDIC insurance had a limitation of $100,000. It now is limited at $250,000. This limit is per individual, per bank. So if you have deposits at multiple different banks, you are insured up to $250,000 at each of them, however if you have multiple accounts at one bank, your insurance limit is $250,000 for the sum of all the accounts. Thus if you have two accounts with $150,000 in them, you would have $50,000 in excess of the insurance limit.

Additionally, FDIC insurance only covers “deposit accounts,” which include:

• Checking and Savings Accounts
• Money Market Accounts (but not Money Market Funds)
• Certificates of Deposit
• Cashier’s checks and other types of banking instruments.

Importantly, it does not cover:

• Stocks, bonds, mutual funds and money funds.
• US government backed securities.
• The contents of safe deposit boxes.
• Insurance and similar products.

Considerations

You should only consider your deposit accounts truly “safe” if they are under the FDIC limit or if they are insured by other kinds of insurance. You should also check with your institution and verify that all of the accounts you think are insured actually are insured. FDIC insurance should be a requirement of any bank with which you consider opening accounts; very few legitimate banks do not carry this kind of insurance.

You should also note that as of March 2009 the FDIC insurance coverage of $250,000 is scheduled to expire in 2010. While there is considerable support for making this coverage level permanent, it may not happen. If it does not become permanent, you should be prepared to reallocate your savings before this date.