When you do any business with your bank, you have likely seen the notation that says FDIC-insured. While you may not pay it much attention, it could be incredibly important if your bank goes out of business.
Unlike other industries where businesses may close their doors, the banking industry is so important that the federal government provides insurance to safeguard your deposits. This comes from the Federal Deposit Insurance Corporation.
What is the FDIC?
The FDIC is an agency created under federal law. It has the job of backing banks to ensure that should they fail, you can get your money back. The goal of this agency is to help increase confidence in financial institutions and to prevent a serious failure like what happened during the Great Depression.
How does FDIC insurance work?
Insurance from the FDIC backs your deposits up to $250,000 per bank. The bank must carry FDIC insurance to have this coverage. That is why you see the notation about FDIC-insured on your banking documents. It is letting you know that your institution has coverage.
If the bank fails, then the FDIC will payout to you by either check or by rolling the funds you had into a new account at a different institution. Do note it does not cover all banking products. Only checking, savings and money market deposit accounts and certificates of deposit have coverage.
FDIC insurance is not something you have to pay for or need to secure yourself. The bank should handle this for you. You will only use the insurance if something happens to make the bank go under.