Oct 15, 2008 1:15 pm US/Eastern
Fast Facts: How The FDIC Works
Q: What is the FDIC, and what does the abbreviation mean?
The Federal Deposit Insurance Corporation is a government organization born following the bank failures of the Great Depression to keep people from losing everything if a bank goes under. It's funded by tax money and by taxes on the financial industry.
Q: Who is protected by the FDIC
Provided a financial institution is insured by the FDIC, and not all are, the FDIC protects any depositor regardless of whether the depositor is a U. S. citizen or resident. These can be individuals, businesses, or corporations.
Q: What institutions are protected by the FDIC
Federally chartered banks and some state chartered banks, are protected by the FDIC.
Q: What Deposits are insured?
The FDIC insures deposits that are payable in the United States. Among the types of accounts insured are:
Savings
Checking
Christmas Club
CD's
Cashiers Checks
Loan Proceeds
Checks
Money Orders
Other negotiable instruments
Investments such as stocks or mutual funds are not FDIC protected, even if you obtain them though your FDIC insured bank or affiliate.
Q: What is protected?
A depositor who has more than $100,000 in deposits is protected up to $100,000 per FDIC insured institution. Depositors who have assets exceeding $100,000 are often advised to split their assets between banks.
Deposits of more than $100,000 maintained in a single bank (or any branch of that bank) are protected so long as they are maintained in different categories of legal ownership. Money contained in separate types of accounts is added together for purposes of determining FDIC insurance coverage.
Q: Is there a difference between Business and Personal accounts?
Money deposited in the name of a corporation or other business entity receive the same FDIC protection individuals do. A business entity must exist to perform an "independent activity" to receive FDIC protection, to prevent the business from existing just to get FDIC protection for a bank account. The FDIC will add the total amounts of all accounts and insure
the business entity to a maximum of $100,000.
Q: Does the FDIC just pay off failed banks?
No. The FDIC also regulates the banking industry and may discontinue its insurance coverage if a bank engages in overly risky banking practices. This is unusual. Most often if a bank is in that type of situation, the FDIC would consider taking over the bank to protect depositors
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