For the unversed, FDIC stands for Federal Deposit Insurance Corporation, which is responsible for protecting consumer deposits in events of financial failure of banks. The maximum insurable amount for FDIC Insured Account is $250,000 per depositor. This simply means if you have a bank account in an FDIC-insured bank and the bank fails, the agency will reimburse the lost money. If you want to increase the sum of $250,000, you have to spread the extra across different FDIC-insured banks.
Knowing the basics
To understand the whole concept of FDIC Insured Accounts, you must have a decent idea of how the banking systems works. Banks don’t keep the money you save in a vault, but uses it in ways to earn revenue. As per rules of the federal government, banks don’t typically have more than 10% of deposits in hand. For the uninitiated, this is what is known as fractional reserve banking. While this might be necessary to make money available to the public and for banks to make revenue, this also means that the banking system is vulnerable to an extent.
Sample a situation where too many account holders ask for more 10% of their deposits, and when that happens at a larger level, the bank wouldn’t have the money to repay them. Some customers would be turned away, and this can create a ripple effect with their market, with more customers wanting their money back. That’s where FDIC-insured banks can be useful for customers.
A benefit for customers
When you have an account in an FDIC-insured bank and your banks fails to repay your dues, the agency will step in and repay the same. Once it has been declared that the bank has failed, FDIC will also take over the assets of the bank and pay off the money owned by the bank to debtors. For account holders, FDIC ensures that the assured insured money is sent immediately. While in other cases, where the amount exceeds the insured amount, customers of the bank will have to wait, until FDIC decides to sell off the assets.
Do you need to ask for FDIC insurance?
No, you don’t need to additionally apply for insurance. You get the benefits and coverage of FDIC insurance as soon as you open an account with any of the FDIC-insured banks. The bank will be able to guide you further on the pros, cons and other aspects about having an account with them.