How FDIC Insurance Works

The FDIC was established to protect the consumers and bank depositors from any losses they may have to suffer if the bank goes to bankruptcy. If you think that your money is safer in the banks than any other places, you need to also know that the banks put your money in various investments and give loans to other people and corporations.

If all of these activities fail, then these banks will suffer and may result to bankruptcy just like what happened in the housing bubble of 2008 in the US.

What is FDIC?

FDIC stands for the Federal Deposit Insurance Corporation. It was established in the US in 1933 and no single depositor  lost money for the bank account under the FDIC coverage according to their website.

FDIC insurance works by charging the premiums for its members banks and carrying its primary mission in ensuring that the customers will get the insurance after the banks has collapsed.

The FDIC will cover saving accounts, checking accounts, certificates of deposit and other types of deposit accounts. It will not cover directly other costs such as the money market investment, the annuities and mutual funds which are sold by the member’s bank.

However, it does cover the individual retirement’s accounts and other deposit  accounts that may be held in the bank. The coverage of the FDIC will apply as per depositor and not on the accounts. The depositor spread equally with checking account and the savings account with the CD and it would be fully covered if the bank collapsed.

Tasks of FDIC

Since the banks are covered up to a certain limit, then it will be better if a person uses more than just one bank. Using different accounts also can be another method such as diversifying the funds into a joint depositor and single depositor. Both  may qualify under the coverage and even if they will be held under one name and under one bank.

If you want to know how FDIC insurance works and would like to determine if the bank you want to open an account is under the FDIC, you have to use the insurance estimator to determine if the deposits have been insured.

FDIC works may include limiting the damage when the bank begins to fail. This may consist selling the banks account to others and sparing the customers the pain and the inconvenience of getting their money back.

The FDIC coverage can be complex and it is important if you keep your money in the bank which is already insured. If you do not want to manage the FDIC on your own, then you can assign someone to do this for you. The financial brokers and advisers can carry help you in keeping your assets under the insurance coverage.

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