Safety Level
While banks are safe places for your money, they do lend and invest your money to make a profit. If those investments go awry, what happens to your money? When your account is insured by the FDIC, you are generally protected from any losses.
History of the FDIC
The Federal Deposit Insurance Corporation (FDIC) was established by the Banking Act of 1933 during the administration of Franklin D. Roosevelt. Prior to that, thousands of banks had failed, and account holders lost significant amounts during banking failures in the Great Depression.
Account Protection
When your money is insured by the FDIC, you don’t need to rush to the bank or try to withdraw your insured funds before the bank fails. However, you’ll want to have liquid funds available elsewhere in case the cleanup takes longer than a day or two. When you have uninsured funds in the bank (because you deposited an amount greater than the maximum allowed for a single depositor), you are taking a risk.
What is Covered and What is Not Covered by FDIC Insurance
FDIC insurance only applies to deposits in covered banks, including money deposited in the following accounts: checking accounts, savings accounts, certificates of deposit (CDs), and money market accounts. FDIC insurance does not cover the contents of safe deposit boxes, investments in stocks and bonds or government securities like T-notes, investments in mutual funds (ETFs) or money market funds, or insurance products like annuities.
Does FDIC Insurance Cover Fraud or Theft?
FDIC insurance also does not cover theft whether due to fraud, identity theft, or bank robbery. However, banks typically have a general insurance policy that protects them from losses caused by theft, fire, flooding, embezzlement, and other events that might cause money to go missing.
Coverage Limits
FDIC insurance is not unlimited. By having a large amount of money in one bank or one account, you may be putting yourself at risk. The maximum coverage is $250,000 per bank where you hold an account. Therefore, you can increase your insurance coverage available to you by using multiple banks or by properly structuring your accounts within a single bank.
How to Maximize Coverage
If you have enough money in your bank to put yourself at risk, it’s worth your time to protect yourself or have someone else do it on your behalf. To maximize your FDIC coverage, use one or more strategies to distribute your money among different banks and account holders.
Summary
FDIC insurance is an important means to protect your funds in insured banks. When insured by the FDIC, you are protected from losses in case of bank bankruptcy, as long as your money is in eligible accounts and is under the dollar limit insured. However, you should be aware of the limits and exclusions of the insurance and take necessary steps to better safeguard your funds.
Source: https://www.thebalancemoney.com/fdic-insurance-315761
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