History of FDIC Insurance

FDIC Insurance came into being primarily because of the Great Depression and the worldwide economic downturn experienced in the 1930s, Money in banks was not insured and because banks normally kept only a small percentage of their deposits in reserve, customers lost money during bank runs. The FDIC was created on a temporary basis by the Banking Act of 1933. The Banking Act of 1935 made the agency permanent and redefined how the organization was to work.


The FDIC is a United States government corporation and operates as an independent agency. The agency is located in Washington D.C. In general, checking accounts, savings, and CD’s are covered by the FDIC. If a bank would fail, the FDIC would step in and pay the account holder up to $250,000. While institutions are not required to be covered by the FDIC, most are to stay competitive. Institutions that are insured are required to place signs that state the deposits are backed by the full faith and credit of the United States Government. The FDIC is not funded by the taxpayer, but by premiums that the banks pay for deposit insurance coverage. It also receives funding from earnings from investments in United States Treasury securities.

How the FDIC Works

The FDIC guarantees each depositor’s account up to $250,000. This guarantee applies to each ownership category for each deposit. There are several distinct ownership categories that qualify to be insured. Government accounts, corporations/unincorporated association accounts, employee benefit plans, revocable/irrevocable trust accounts, and certain IRA’s are all specific categories that can be considered distinct ownership. Joint accounts with equal rights for withdraw can also fall into this category. Finally, single accounts that don’t fall into any of the previous sections can qualify as a distinct ownership category.

The FDIC does not, however, insure credit unions. The National Credit Union Administration (NCUA) secures most credit unions. There are certain products, even if purchased through a financial institution, that are not covered by FDIC. These include mutual funds, money market funds, annuities, life insurance policies, stocks, and bonds. The contents in a safe deposit box are not covered by FDIC.

In addition to insuring certain accounts, the FDIC oversees various activities at banks to help the institutions run more effectively. The FDIC also makes sure the banks follow consumer friendly laws. If a bank does fail, the FDIC will be there to make sure the proper steps are taken to repair whatever damage has been done. This often includes finding another bank or financial institution to take over the bank’s loans and deposits.

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