What is the FDIC?

The FDIC is the Federal Deposit Insurance Corporation. It was organized in the wake of the Great Depression, when bank failures left many depositors destitute when their accounts were wiped out. The executive and legislative branches saw the devastation this caused for ordinary Americans, and set out to insure that it would not happen again. They therefore created an insurance institution back by the faith and credit of the United States to insure depositors’ accounts up to a limit specified by law. That limit has been raised over time to keep pace with inflation. Such increases are often termed “temporary,” but they apply to the deposits in these institutions at this time, so the “temporary” term should not be a matter of concern.

Video: The FDIC - Federal Deposit Insurance Corp.

What types of deposits are covered?

All actual deposits in the bank or savings association are covered, whether they are Savings, checking, NOW, money market accounts or Certificates of Deposit. The principal and the interest accrued on such accounts is insured, up to the legal limit. Securities such as stocks, bonds, debentures, and annuities, life insurance policies, and municipal securities, even though purchased through the bank, are not covered. Federal instruments are backed by the government’s faith and credit, and are not covered by the FDIC. Individual Retirement Accounts (IRAs) are also covered by the FDIC.

What institutions are covered?

Insured banks and savings associations are covered. To determine whether an institution is insured, you can call toll free to 1-877-275-3342.

What about credit unions. Are they covered?

Credit Unions are not covered by the FDIC. They are covered by the National Credit Union Administration, a federal agency also backed by the faith and credit of the United States. The terms used are slightly different. The NCUA refers to “shares,” but the effect is the same. The basic coverage is $250,000.00 per depositor per insured institution. Different branches of the same bank or savings association are not different institutions, so only one limit is available to you in that institution. The NCUA limit is also (temporarily) currently $250,000.00. Note that the limitation is per depositor per institution. People concerned about the safety of their deposits tend to place amounts in several different institutions (not just different branches) so that their funds are all protected by the FDIC.

What about debts I owe to a bank that fails?

If you owe money to a failed bank or S&L, the successor in interest (i.e., Washington Mutual failed, but its assets were sold to Chase) still owns your note, and you will be responsible to make payments to the successor.

What banks have failed this year?

Video: Washington Mutual - The largest bank failure in U.S. History

The FDIC lists 23 banks that have failed in 2008. Most years there are three or four, and back in 2002 there were 11, but the closures this year are truly unprecedented in recent times. That fact is driven home by the fact that the failure of Washington Mutual Bank in September of 2008 was the largest bank failure in the history of the United States.