Banks and FDIC Insurance

The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the federal government created by the Banking Act of 1933.

The FDIC’s primary job is to provide deposit insurance, which guarantees the safety of checking and savings deposits in member banks.  The FDIC makes sure that, if a bank is closed, all of the bank’s customers will get their deposits back, including any interest they’ve earned, up to the insurance limit under federal law.  By protecting depositors, FDIC insurance also gives people the confidence to keep their money in banks.  Insured deposits are backed by the full faith and credit of the United States.

FDIC is one of five federal regulators of banking institutions in the U.S.  With the other bank regulatory agencies they make sure that the financial institutions in the U.S. operate safely, which helps prevent bank failures, and comply with certain consumer protection laws.

The FDIC provides deposit insurance for the deposits in member banks, currently up to $250,000 per depositor per bank.  In the fall of 2008, Congress temporarily increased the basic FDIC insurance coverage limit from $100,000 to $250,000 through December 31, 2009.  In addition, the FDIC simplified the rules for the calculation of deposit insurance coverage for revocable trust deposits, including an expanded definition of the eligible beneficiaries for additional insurance coverage.

FDIC started when President Roosevelt signed the Banking Act of 1933 on June 16, 1933, to raise the confidence of the U.S. public in the banking system by alleviating the disruptions caused by bank failures and bank runs.  From 1929 to 1933, bank failures resulted in losses to depositors of about $1.3 billion.  The considerable number of bank failures that were spurred by runs on the bank in the Great Depression led the United States Congress to create an institution to guarantee deposits held by the nations banks.

The Great Depression, which was the largest worldwide economic downturn, hit the U.S. in 1929 and lasted until about 1939.  It is the longest and most severe depression experienced by the U.S.  During this time a considerable number of banks failed, many because they have made loans to stock market speculators that are never repaid.  As the Depression became more of a national emergency, reaching its peak between 1932 and 1933, the U.S. government established several agencies as a means for creating and releasing new and emergency functions to stem the economic crisis.  The FDIC is one of the agencies created.

On January 1, 1934 the FDIC deposit insurance went into temporary effect.  The deposit insurance level at this time was $2,500.  On July 1, 1934, the FDIC deposit insurance increases the coverage level to $5,000.

The Banking Act of 1935 established the FDIC as a permanent agency of the government and provided for permanent deposit insurance and maintained it at the $5,000 level.

The Federal Deposit Insurance Act of 1950 increased the insurance limit from $5,000 to $10,000.  This Act also gave the FDIC the power to provide funds to any insured bank that is in danger of closing, if the operation of the bank is considered essential to the local community.  The Act authorized the FDIC to examine national and state-member banks to determine their insurance risk.

In1966 the FDIC deposit insurance limit was increased to $15,000.

In 1969 the FDIC deposit insurance limit was further increased from $15,000 to $20,000

In 1974 the FDIC deposit insurance limit was increased from $20,000 to $40,000, principally because of sustained high levels of inflation during this time.

The Depository Institutions Deregulation and Monetary Control Act of 1980 increased the FDIC deposit insurance coverage from $40,000 to $100,000.  This is the last increase until The Emergency Economic Stabilization Act of 2008 was signed on October 3, 2008.  The Stabilization Act temporarily raises the basic limit of federal deposit insurance coverage from $100,000.00 to $250,000.00 per depositor.  In 2006, a change to a component of FDIC insurance coverage was made when deposit insurance for Individual Retirement Accounts (IRA) only was increased to $250,000.00.  This is separate from the regular $100,000.00 coverage of other bank deposit accounts.

With banks and the economy in the news so much lately the value of these historical changes to FDIC insurance is garnering more attention and reaping benefits for today’s economy.  FDIC deposit insurance coverage has significantly increased and it remains as automatic deposit insurance coverage when bank customers open a deposit account at an FDIC insured bank, with no additional action on the part of the bank customer.  Bank depositors that have $250,000 or less in all of their deposit accounts at the same insured bank, don’t need to worry about your insurance coverage, the deposits are fully insured.

Bank customers may also qualify for more than the basic insurance coverage at one insured bank.  That’s because the FDIC provides separate insurance coverage for deposits held in different ownership categories of covered bank accounts.  For example, under current rules, deposits in:
Single accounts, those in one name only, are insured up to $250,000; Joint accounts, bank deposit accounts for two or more people, are protected up to $250,000 per owner; Certain retirement accounts including IRAs are covered up to $250,000; Revocable trust accounts, those bank deposits intended to pass along to named beneficiaries when the account owner dies, can be protected up to $250,000 for each named beneficiary subject to specific limitations and requirements.

Savings banks or savings and loan associations also known as thrift institutions are also FDIC insured.  Most but not all banks and thrifts in the U.S. are insured by the FDIC.  One way to check whether an institution is FDIC insured is to call the FDIC toll free at 877-275-3342.

Federal law requires the FDIC to make payments of insured deposits, all the money determined by the FDIC to be within the federal insurance limits, “as soon as possible” after the failure of an insured institution.  In most cases, the FDIC makes insured funds available to depositors quickly, usually on the first business day after the bank is closed.  Since the start of FDIC insurance, no one has lost a cent of insured money because of a bank failure.

Tags: Banks, FDIC, savings

This entry was posted on Wednesday, February 4th, 2009 at 10:55 pm and is filed under Money Rates. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.