What is FDIC Deposit Insurance?

What is FDIC Deposit Insurance?

The FDIC is a federal government entity tied to Congress and charged with the prevention of and intervention in a banking crisis. The FDIC was created in 1933, when bank runs were common in the wake of the Great Depression. Bank runs typically occur when a large number of depositors all withdraw their money from a bank at the same time, generally due to fears that the institution will become insolvent or unstable. With so many depositors all withdrawing their money simultaneously, the bank uses up its cash reserves and ends up defaulting. The FDIC was created to step in during these types of scenarios.

Currently, the most well-known FDIC program is FDIC deposit insurance, where all deposit holders at licensed financial institutions are guaranteed the ability to access their funds in the event of a bank failure, up to a limit of $250,000. This deposit insurance applies to most banks within the US.

What is Covered By FDIC Insurance?

FDIC coverage depends on the types of depository financial institutions and types of accounts used by your business.

Banks

Nearly all banks carry FDIC insurance for their depositors. However, FDIC does not cover share accounts at credit unions. These are instead covered by the National Credit Union Share Insurance Fund, run by the National Credit Union Administration (NCUA), which plays a similar role to the FDIC.

If you’re interested in finding out how much FDIC deposit insurance coverage your accounts have, you can use the FDIC’s Electronic Deposit Insurance Estimator (EDIE).

Account Types

Most—but not all—cash and cash-like funds are covered by FDIC.

For companies looking to add redundancy to their bank infrastructure, Modern Treasury can help by providing access to multiple banks at once. Learn more here and reach out if we can be helpful.