Why Your Money Is Safe in a Bank: A Look at FDIC Insurance and What It Covers

Remember the scene from It’s a Wonderful Life when a bunch of customers crowded into the Bailey Building and Loan and demanded their money? George Bailey had to use his honeymoon money to help his business stay above water. Poor George.

That was what’s called a bank run, and they were pretty common during the Great Depression. People would get scared their money wasn’t safe for some reason, withdraw all their cash, and the bank would fail. But in 1933, Congress created the Federal Deposit Insurance Corporation (FDIC) to stabilize the banking industry by insuring and protecting deposits up to $250,000.

FDIC insurance is why you don’t see many bank runs these days. It’s also why your money is safe in a bank.

If the economy suddenly tanks or some banks fail, there’s absolutely no reason to head to your local bank branch and withdraw a suitcase full of cash. Your money is much safer in a bank than it would be stuffed under your mattress (or anywhere else), and that’s because bank deposits up to $250,000 are insured by the FDIC.

What Is the FDIC and How Does It Work?

The FDIC insures trillions of dollars of bank deposits at more than 5,000 banks and savings associations in the U.S.¹ It’s an independent federal agency that functions kind of like a big insurance agency. But instead of homes or cars, the FDIC insures bank deposits. The FDIC also monitors banks and banking practices to protect bank customers.

The FDIC is funded through insurance premiums that FDIC-member banks pay. When a bank fails, the FDIC swoops in and reimburses customers for any lost money. Then it takes over the failed bank and works to transfer its loans and deposits to a healthy bank. 

How Much Money Does the FDIC Insure?

The FDIC insures up to $250,000 “per depositor, per insured bank, for each account ownership category.”² Let’s explain some of those terms. A depositor is a bank customer, and an ownership category is simply the type of account: individual, joint or business. So FDIC insurance is enough to cover just about everyone with a bank account—except for the very few with balances above $250,000.

So, what if you do have more than $250,000 and want FDIC protection? Well, there are ways to protect your money if you have more than the FDIC insurance limit. (Burying it in a coffee can in the backyard isn’t the answer.)

Let’s say you have $750,000. You could deposit $250,000 in three different banks, and since FDIC insurance is $250,000 per insured bank, all of your money is protected.

The FDIC also covers $250,000 for each type of account ownership (individual, joint or business), so you could keep your money in the same bank but just put it in three different ownership categories to stay under the $250,000 limit.

What Types of Accounts Does FDIC Insurance Cover and Not Cover?

You don’t have to buy FDIC insurance like car or life insurance. You’re automatically covered if your bank is FDIC-insured and your money is in a type of account the FDIC insures.

Here are the types of accounts insured by the FDIC:

• Checking accounts
• Savings accounts
• Money market deposit accounts
• Certificates of deposit (CD)
• Prepaid cards (with certain restrictions)³

In addition to individual, joint and business ownership categories, the FDIC also provides $250,000 in coverage to these ownership categories: IRAs, self-directed 401(k) and profit-sharing plans, and revocable and irrevocable trusts.

But the FDIC doesn’t cover everything. Here are the products the FDIC doesn’t insure:

• Stock investments
• Bond investments
• Mutual funds
• Cryptocurrency
• Life insurance policies
• Annuities
• Municipal securities
• Safe deposit boxes or their contents
• U.S. Treasury bills, bonds or notes⁴

While not protected by the FDIC, investments like stocks, bonds and mutual funds are protected by SIPC, an organization that will step in and help you recover your money if your brokerage firm fails. All 50 states also have insurance guaranty associations to protect consumers if an insurance company fails.

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But let’s get back to the FDIC.  

How Do You Check if Your Bank Is FDIC Insured?

Just about every bank in the U.S. (except the First National Bank of Mom and Dad) is FDIC insured. But it’s always a good idea to make sure your particular bank is insured. Your bank’s website should have an FDIC logo on it, or you might see an FDIC sticker on the front door of a local branch. If you can’t find confirmation that way, ask a bank teller.

The FDIC website also has a handy lookup tool.

Now, if you bank with a credit union, you won’t find the FDIC logo. But don’t worry! That’s only because credit union deposits up to $250,000 are insured by the National Credit Union Administration (NCUA).

If you’re still concerned about your bank failing, let’s dig a little deeper.

What Causes a Bank to Fail?

Before we get to what makes a bank collapse, we’ll need to look at how banking works. Banks get money (called deposits) from customers, and they pay customers interest for the right to use that money for financial transactions. Banks don’t just keep all that cash in a big steel safe. They lend it out to other customers, invest it in bonds and other securities, and hold some of it in cash for when customers need to make withdrawals.

Remember those bank runs we mentioned? This is where they come into play. If a bunch of customers get scared for some reason and decide to withdraw all their money at the same time—that’s not good. At a certain point, the bank won’t have enough cash to pay back to its depositors, and it will fail.

A bank run isn’t the only reason a bank fails. A bank could also collapse due to mismanagement or fraud.

But bank failures are the exception. Most banks keep enough cash in reserve to remain stable even in crazy economic times. And if your bank fails—and that’s a big if—there’s no reason to panic if your deposits are less than $250,000.

What Happens if Your Bank Collapses?

If your bank fails and your deposits are insured, you have nothing to worry about. In some cases, the FDIC moves so quickly that your banking service is only interrupted temporarily.

Now, if your bank fails and you have uninsured deposits (those above $250,000), you might just be out of luck. The FDIC will work to help you recover your money by selling the failed bank’s assets, but you might not get all your money back.

Here in the U.S. recently, a couple of banks failed and the Federal Reserve and the FDIC stepped in to guarantee all deposits (insured and uninsured) to try to prevent panic from spreading to other banks.⁵ The Fed also launched a new program to offer loans for up to one year to help banks and credit unions pressed for cash.⁶

Listen, you have enough things to worry about when you check your bank account balance (the price of groceries, gas, bacon). Whether or not your bank is going fail shouldn’t be one of them.

We might sound like a broken record, but you need to hear us on this: Don’t panic if you see that a bank failed. Panicking just makes things worse. If you think your bank might fail, don’t panic. If the economy is headed for a recession, don’t panic. If alien spaceships start hovering over major U.S. cities . . . okay, you can panic.

Stay in Control of Your Finances

Well, you’re not worried about a bank failure anymore, right? Great! But you still need to pay attention to  how you’re spending your money. And the best way to stay in control of your finances is to have a budget. Our EveryDollar app makes it easy to plan, spend and track your money with features you’ll love to use.

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