The Federal Deposit Insurance Corporation (FDIC) insures $250,000 of deposits for each individual’s accounts at over 5,000 banks. This reassures depositors that their money is accessible in the situation where their bank fails, reducing the threat of bank runs during financial crises. The FDIC insures multiple different types of accounts including single accounts, joint accounts, and retirement accounts. An individual will be insured for up to $250,000 for each account type. For example, if an individual had a trust account, single savings account, and a retirement account, they would have a total of $750,000 of FDIC insured deposits. Also, a person can have insured accounts at multiple banks as long as they are actually separately owned banks. So, if an individual owned both a savings account and a retirement account at two different banks, they would have $1,000,000 of insured deposits.
For banks, the FDIC can require certain capital, investment, and oversight requirements that reduce chances of bank failures in exchange for insuring the deposits at a bank. Should a bank fail, the FDIC will ensure that deposits are returned and creditors get what can be salvaged from the bank’s assets. The FDIC has wide authority over how the assets are used to pay the creditors with the ability to sell, merge, and regroup assets. Banks must pay the FDIC a premium for their deposits to be insured, varying based on the amount of accounts and capitalization of the bank.
[Last updated in February of 2022 by the Wex Definitions Team]