FDIC And Your Money

Have you ever really listened to a bank commercial on tv or the radio?  At the end you will hear them say that they are a member of the Federal Deposit Insurance Corporation or FDIC.  What does that mean? It means that your funds are ‘backed by the full faith and credit of the United States government.’  That means if the bank folds, your money will be returned to you by the US government. 

I am asked almost daily about FDIC from clients.  They want to make sure that they wont lose a dime of their hard-earned money if anything happens to the bank.  I tell them they are insured and should be more worried about inflation than FDIC insurance, but that’s another battle. 

History

The FDIC was established in 1933 by Franklin D Roosevelt to create order in the financial industry.  All hell broke loose in the late 1920’s with the Great Depression and people were losing all their money that was just sitting in bank accounts.  Clients were withdrawing all of their money, and the banks eventually ran out.  When a bank runs out of money, they go under.  At that point, people lost all their money that was held by that bank. 

FDIC is an insurance on your money.  If the bank runs out of the green stuff, your money isn’t lost.  FDIC steps in and writes you a check that the bank couldnt cash.  Since the FDIC was created, no one has ever lost a penny to a bank failure (now fees are a different story). 

 

Who Pays For FDIC?

Have you ever wondered who pays for this insurance? I think this was one of my biggest thoughts, yet I never was asked.  Just like most insurance, there is a premium to be covered.  Luckily, depositors such as you and I don’t have to pay this premium (yet).  Banks pay a premium based on their risk category.  The more risky the bank, the larger their premium. 

 

Am I Insured? 

The FDIC website provides a nice calculator tool that tells you if your deposits are insured or not.  Currently, deposits are insured up to $250,000 per owner.  That means if you have an individual account with $200,000 in deposits, you are insured for the full amount.  If you had over $250,000 in the account, you would only be insured up to the $250,000 limit. 

There are plenty of ways to get insured for more than just $250,000.  If you are at the max limit on a joint account, you can open an individual account and be insured for another $250,000.  If you add beneficiaries, they will have $250,000 insured each.  If you have a trust, the trustee is insured, and up to 6 beneficiaries can be insured.  You can essentially have over 2 million dollars insured at one bank.  This should help solve the saying that you shouldnt put all your eggs in one basket.  If you have less than 2 million dollars, you can deposit it all in one basket (bank).  For those of you who have over 2 million and need to know what to do with it, email me and I’ll give you my bank account number. 

If you are wondering if your accounts are insured, take a look at the FDIC’s calculator.  This is a great tool that is fairly easy to use and will let you know if you’re insured or not.