“How important is FDIC and why do I need it?”

Risk Management & Insurance

Short answer: FDIC protects the values of your checking & savings accounts

If you’ve ever walked into a bank branch, chances are you’ve noticed one of the ubiquitous “FDIC insured” signs on the window. It’s certainly a financial hoop that banks must jump through in order to function, but it’s actually an extremely valuable assurance to customers.

FDIC stands for Federal Deposit Insurance Coverage. If you bank at a credit union, you might have seen it’s sister agency National Credit Union Agency (NCUA.) FDIC and NCUA were formed in 1933 by Franklin Roosevelt. It was part of the New Deal, intended to re-inflate the economy after sharp declines in prices and boost consumer and investor confidence after the Crash of 1929.

Understanding the why can us understand FDIC’s valuable to this day.

So how does it benefit you?

FDIC protects the balance of certain accounts in the event of a bank liquidity or insolvency event. (We’ll get into account types below.) Depositors are guaranteed a recovery of their money up to $250,000 per account. Covered accounts include: deposit accounts, savings accounts, checking accounts, CDs, cashier’s checks, and accounts denominated in foreign currency.

Accounts that are not covered by FDIC: Stocks, bonds, mutual funds, and money funds. The Securities Investor Protection Corporation is a separate entity that protects against brokerage failure or insolvency (not investor losses, however.)

With growing options on where to put your money, it’s important to know when you’re protected and when you’re not.

Finn’s Fact:
Prior to 1933, and the New Deal, banks were at risk of going “belly up” if too many depositors withdrew their money too quickly. These situations created panic both for banks and for consumers, since many banks did not have the cash on hand to cover all of the withdrawls. Therefore, those who did not make it to the bank “in time,” lost all of their money.

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