How Does FDIC Insurance Work?If you have an account with an FDIC-insured bank, you won't lose more than $250,000 if your bank fails. The reimbursement you'll get will include the amount of money you had in your account plus any interest that has been added up until the bank went out of business. Typically, you'll get your funds within days of the bank's failing, whether the FDIC pays you back directly, or transfers your funds to a new bank. However, it's important to note that the FDIC does not cover investments such as stocks, bonds, and mutual funds—so if you lose money in any of these areas due to a bank failure, you likely won't be able to recoup your losses through FDIC insurance. We'll dive into what FDIC insurance does and does not cover next. (Head to this article next to find out about cash deposit limits).
What Does FDIC Insurance Cover?Here are the banking products FDIC insurance covers:
- Checking accounts: These are everyday accounts used for day-to-day transactions.
- Negotiable Order of Withdrawal (NOW) accounts: These offer more interest than checking accounts. Account holders can use them like a savings account, but can also use them to write checks.
- Savings accounts: These offer access to your money in exchange for a lower interest rate than other deposit options.
- Money market deposit accounts (MMDA): These are similar to savings accounts but typically feature higher interest rates and require much larger minimum balances.
- Time deposits such as certificates of deposit (CDs): CDs have a predetermined term length ranging from one month to several years. (Read about the differences between CDs and savings accounts next)
- Cashier's checks, money orders, and other official items issued by a bank: These are commonly used for large purchases or to pay rent.
What's Not Covered by FDIC InsuranceIt's just as important to understand the limits of FDIC insurance, so let's talk about what it doesn't cover next.
- Stock investments: These include stocks, bonds, mutual funds, and other investment products.
- Life insurance policies: FDIC insurance does not cover life insurance policies.
- Annuities: These are long-term investment contracts and are not FDIC-insured either.
- Municipal securities: These are investments local governments and their agencies issue, and the FDIC does not insure them either.
- Safe deposit boxes or their contents: Safe deposit boxes are a place to store special or important items such as jewelry and documents. But these boxes—and what you keep inside of them—are not covered by FDIC insurance.
- U.S. Treasury bills, bonds, or notes: The U.S. government backs these investments, so they don't need FDIC insurance.
After a Bank Fails, How Does the FDIC Pay You Back?If your bank has FDIC insurance and it fails, there are two ways you'll tend to receive your insured deposits:
- Payoff method: The FDIC will sell the failed bank's assets and pay off depositors up to the insured amount of $250,000 per depositor using the payoff method. This method can take several months as the FDIC collects the bank's assets to pay out claims.
- Deposit transfer method: Involves transferring your deposits from the failed bank to a healthy bank, allowing you to access your funds at the new institution and receive FDIC insurance coverage up to $250,000. This method is usually faster since it only requires transferring funds from one bank to another.
Understanding Banking Regulations and How They Protect YouNow let's focus on how banking regulations can protect you as a consumer. Banks have to follow several laws which require them to provide you a clear and accurate picture of your accounts, interest rates, fees and terms. This applies to not only savings and checking accounts, but also to ATM withdrawals, fund transfers, online banking and more. First and foremost, banking regulations exist to protect consumers from unfair practices and strive to guarantee banks operate safely and soundly. As a consumer, it's helpful to be aware of your rights and know how to file a complaint or dispute if necessary. One of the most vital consumer rights is accessing your account information and transactions. Therefore, with few exceptions, banks must provide regular account statements and make account information easily accessible to customers. Another important right is fair and transparent fees and interest rates. Banks should disclose all fees and interest rates associated with their products and services clearly and easily.
How and where to file a complaint or dispute with your bankIf you have a complaint or dispute with your bank, the first step is to contact the bank directly and attempt to resolve the issue. Reach out to the customer service line that is typically listed on the back of your credit or debit card, or in your online banking portal. If you're unsatisfied with the bank's response, you can file a complaint with a regulatory agency, such as:
- Consumer Financial Protection Bureau (CFPB): The CFPB is an independent federal agency that provides oversight of banks and other financial institutions. They operate an online database where you can search for complaints about financial institutions and products like credit cards, mortgages, student loans and more. You can file a complaint with the CFPB online, by phone, or by mail.
- Office of the Comptroller of the Currency (OCC): The OCC is a federal agency that regulates and supervises national banks. If you believe your bank has violated a federal law or engaged in deceptive practices, you can file a complaint with the OCC online or by mail. It's important to note, however, that the OCC doesn't handle disputes related to state-chartered banks or credit unions.
Pros and Cons of FDIC InsuredIt's also wise to consider the pros and cons of FDIC insurance before deciding whether to bank with FDIC-insured institutions.
|Provides peace of mind that your deposits are insured up to $250,000 per depositor per bank||Not all banking institutions are FDIC-insured. You should always check when opening a bank account.|
|Widely available at most US banks||Stock market investments are excluded from FDIC insurance|
|If you have multiple accounts at one bank, each is insured separately||If you have more than $250,000 in a bank account, the rest of the funds are not insured|
|No additional cost to you||Doesn't protect against market fluctuations, only bank failures|
ConclusionNow, you know much more about bank insurance, including the ins and outs of bank account protection, deposit insurance, and the pros and cons of FDIC insurance. Remember: not all banks have FDIC insurance, so it's wise to confirm your particular bank does before opening an account. And remember, you can file a complaint or dispute with your bank if you desire. With all this in mind, we hope you feel more empowered regarding banking—and confident knowing if your deposits have insurance.