[2001] Why and How to Know What’s FDIC-Insured and What Isn’t
Excerpted and updated from "One-Stop Shopping for Financial Services: A Window of Opportunity for the Informed Consumer," Spring 2001.
The wide array of financial products available from banking institutions means you can take care of most of your financial needs—from banking to investing to buying insurance—under one roof. For example, you may be able to put your retirement savings into mutual funds and insured bank deposits all at the same bank. Or, you can get your auto loan and your auto insurance from the same institution. But along with a wider range of savings and investment options comes an increased need for consumers to be knowledgeable about these various products and the different risks associated with them. Some products can offer the potential for higher returns than traditional deposits, but consumers need to understand these products, especially the risks, before they make a purchase.
One important aspect of understanding the risks is to know which products offered by banking institutions are covered by FDIC insurance and which are not. Examples of FDIC-insured deposits include:
- Checking accounts, Negotiable Order of Withdrawal (NOW) accounts (checking accounts that earn interest), and Money Market Deposit Accounts (savings accounts that allow a limited number of checks to be written monthly).
- Savings accounts that you can add to or withdraw from at any time.
- Certificates of deposit (CDs), which generally require you to keep funds in the account for a set period, perhaps from three months to five years. Money can be taken out beforehand if you pay an early withdrawal penalty.
So, what’s NOT insured by the FDIC that consumers often mistakenly believe may be federally insured if a banking institution is involved?
- The contents of safe deposit boxes. Even though the word deposit appears in the name, under federal law a safe deposit box is not a deposit account — it's strictly a well-secured storage space rented by an institution to a customer. If you are concerned about the safety or replacement of items you put into a safe deposit box, ask your insurance agent whether your homeowner's or renter's insurance policy covers your safe deposit box against damage or theft.
- Losses due to theft or fraud at the institution, including cybercrimes. For information on how federal laws and industry practices may limit losses under certain circ*mstances, search by topic at the Federal Trade Commission website.
- Insurance and annuity products, such as life, auto and homeowner's insurance. Not only are these products not backed by the FDIC, but some insurance products may even lose value.
- Stocks, bonds and mutual funds.
- Investments backed by the U.S. government, such as Treasury securities and Savings Bonds.
How can you tell the difference? First, remember that FDIC insurance protects only deposits. Products such as mutual funds, annuities, stocks, bonds and U.S. Treasury securities are not deposits and, therefore, are not protected by the FDIC. Mutual funds, stocks and bonds also are subject to investment risks, including the possible loss of principal, even if you bought them from your FDIC-insured institution. Treasury securities and Savings Bonds, while not insured by the FDIC, are backed by the full faith and credit of the U.S. government.
To minimize potential confusion about which products are FDIC-insured, banks and savings institutions are required by federal banking regulators to clearly differentiate insured deposits from investments, both in their sales practices and their advertisem*nts. For example, when offering or advertising an investment product to a customer, FDIC-insured institutions must indicate that the investment is not FDIC-insured, is not guaranteed by the bank or savings institution, and is subject to investment risk, including the possible loss of principal.
FDIC insurance provides a guarantee that your insured deposits will be safe in the event your bank or savings institution fails. While the basic federal insurance amount is $250,000, you actually can receive more than $250,000 of coverage if your funds are maintained in different ownership categories. For example, you can have coverage of up to $250,000 for your individual accounts at the bank, another $250,000 for your share of joint accounts at the same bank, and yet another $250,000 for certain retirement accounts, including Individual Retirement Accounts (IRAs).
The FDIC also is here to help you with your banking questions or problems. Start at www.fdic.gov or call toll-free 1-877-ASK-FDIC (1-877-275-3342). To learn more about FDIC deposit insurance coverage, call that same number or visit visit our webpage. If you are a person who is deaf or hard-of-hearing, please call 1-800-925-4618. The FDIC offers assistance to individual consumers in a variety of ways because we share a common goal—to protect your money.
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