What Is FDIC Insurance and How Does It Work?
You’ve probably seen the acronym, “FDIC”, on many financial-related materials, websites, and ads. But what exactly does the FDIC have to do with your money?
The FDIC, short for the Federal Deposit Insurance Corporation, was created in 1933. According to their website, the FDIC is “an independent agency created by the Congress to maintain stability and public confidence in the nation’s financial system.” One of the ways the FDIC accomplishes its mission is by insuring deposits against bank failure and loss of funds. It’s important to understand the ins and outs of FDIC insurance to know how it can impact your money.
What is FDIC insurance?
FDIC insurance is government-backed insurance on your money when you deposit it into certain account types and financial institutions. If you open a deposit account at an FDIC-insured institution, the money in that account is insured against bank failure. FDIC insurance can give you peace of mind that you won’t lose the money in your deposit accounts if the bank fails.
Types of Accounts Covered by FDIC Insurance
FDIC deposit insurance covers deposit products exclusively. You can read more details about what FDIC insurance covers here. Specifically, the following are some examples of FDIC-insured deposit products:
- Checking accounts
- Negotiable Order of Withdrawal (NOW) accounts
- Savings accounts
- Money Market Deposit Accounts (MMDAs)
- Time deposits such as certificates of deposit (CDs)
- Cashier's checks, money orders, and other official items issued by a bank
Types of Accounts Not Covered by FDIC Insurance
While FDIC insurance covers traditional deposit accounts, the following are examples of accounts that are not covered by FDIC insurance:
- Accounts through credit unions (however, these may be insured by NCUA; read more about NCUA-insured accounts)
- Stock investments
- Bond investments
- Mutual funds
- Crypto assets
- Life insurance policies
- Annuities
- Municipal securities
- Safe deposit boxes or their contents
- U.S. Treasury bills, bonds, or notes (however, these investments are backed by the full faith and credit of the U.S. government)
FDIC Insurance Limits
The FDIC states that “the standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category. The FDIC provides separate coverage for deposits held in different account ownership categories. Depositors may qualify for coverage over $250,000 if they have funds in different ownership categories and all FDIC requirements are met.”
So, let’s say you deposit $15,000 into a checking account at an FDIC-insured institution or bank. Your money is entirely covered by FDIC insurance because it is under the $250,000 limit. Or, let’s say you have $200,000 in your savings account, $60,000 in your checking account, and both accounts are held at the same bank. Because checking and savings accounts are the same account ownership and both in your name as the depositor, $10,000 would not be insured. Learn more about FDIC insurance limits here.
How does FDIC insurance work?
When you open an account with a bank or financial institution, it’s important to know that your money is secure if the bank fails. Deposits at FDIC-insured institutions are protected up to $250,000 per depositor, per insured bank, for each account ownership category. Regardless of what happens to that institution, your deposits are guaranteed by the federal government to be returned to you.
Financial institutions that are not FDIC-insured may have other types of protection, depending on the account type. For example, many credit unions are NCUA-insured, and deposit accounts at some credit unions are protected in the event of a failure. Additionally, some cash management accounts have protections through the Securities Investor Protection Corporation (SIPC). It’s good to know what (if any) protections your money will have before opening an account, especially if you’re considering options like high-yield savings or checking accounts.
Is Upgrade FDIC-insured?
Upgrade partners with FDIC-insured banks and NCUA-insured credit unions to offer deposit accounts. Money deposited into a Rewards Checking Plus account through Upgrade is insured up to $250,000 through Cross River Bank, Member FDIC. Money deposited to Premier Savings accounts through Upgrade are insured through FDIC and/or NCUA insurance at Participating Institutionsup to $1,000,000.* Upgrade is not a bank and is not FDIC-insured.
Summary
FDIC insurance protects your money if the bank you’re storing it in fails. However, there are certain limits to the amount of money and the type of deposit account that can be FDIC-insured. Make sure you know any restrictions and/or requirements before opening an account with any bank or financial institution.
*Deposits to Premier Savings are eligible for FDIC and/or NCUA deposit insurance up to $1 million or more through Cross River Bank, Member FDIC and Participating Institutions. Learn more about the Custodial Program and Participating Institutions. Cross River Bank may place some or all of the funds held in your savings account(s) into an account at one or more other Participating Institutions. Each Participating Institution is either (1) a FDIC-insured depository institution that only covers the failure of insured banks, or (2) a credit union that is eligible for insurance through the NCUA Share Insurance Fund if the credit union fails. Funds are insured up to $250,000 per ownership category and per institution. Certain conditions must be satisfied for FDIC deposit insurance coverage to apply to any funds held at a FDIC-insured depository institution. Upgrade is not a bank and is not FDIC insured. You are responsible for monitoring where your deposits are held (available in your Upgrade dashboard) to determine the extent of FDIC and/ or NCUA insurance coverage available to you.
