What Is Deposit Insurance and Why Does It Matter?

Deposit insurance keeps your money safe, even if your bank shuts down. In the United States, the Federal Deposit Insurance Corporation (FDIC) provides this insurance for bank deposits, and the National Credit Union Administration (NCUA) offers similar insurance for credit union deposits.

The FDIC is a special agency created by the U.S. Congress in 1933 during the Great Depression. It ensures that your deposits are covered up to a certain limit if a bank or thrift institution fails. This means that if your bank shuts down, the FDIC will pay back your insured deposits up to specific established limits.

FDIC insurance is required for all banks and thrifts allowed to operate in the U.S. The insurance is paid for by these institutions' premiums, not taxpayer money.

FDIC insurance serves as a safety net for bank depositors and ensures the protection of your funds.

FDIC insurance covers several types of deposit accounts, including:

• Checking accounts
• Savings accounts
• Money market deposit accounts
• Certificates of deposit (CDs)
• Trust accounts
• Employee benefit plan accounts
• Certain retirement accounts, including IRAs (individual retirement accounts)

You don't need to apply or pay any fees to get FDIC insurance — it’s free protection that comes with eligible bank accounts.

The National Credit Union Administration (NCUA) is a federal agency that acts as an independent regulator and insurer of federally insured credit unions.

The NCUA administers the National Credit Union Share Insurance Fund (NCUSIF). This fund provides deposit insurance coverage to members of federally insured credit unions, similar to how the FDIC insures bank deposits.

FDIC and NCUA insurance covers multiple accounts you hold at the same bank as long as the total balance across those accounts doesn't exceed the $250,000 limit for each ownership category.

For example, if you have a $100,000 checking account and a $150,000 savings account at the same bank under your name (single ownership), both accounts would be fully insured because their combined $250,000 balance falls within the coverage limit.

Here are the FDIC and NCUA ownership categories and insurance limits:

Here are some scenarios to help you understand the limits of FDIC and NCUA coverages.

The $250,000 deposit insurance limit applies to all accounts in the same ownership category at a single bank or credit union. Different account ownership categories, such as joint accounts, revocable and irrevocable trust accounts and certain retirement accounts, are covered by separate insurance programs.

This means that individuals can have more than $250,000 insured at one bank or credit union by distributing their money across different account types.

Understanding what the FDIC and NCUA cover is essential, as is understanding what is out of bounds.

If you have deposits held at a bank or credit union that exceed the insurance limits provided by the FDIC or NCUA, the process of recovery can take several years. If a bank or credit union fails, the institution sells off its assets and starts making periodic payments to depositors. During this reimbursement process, funds exceeding the insurance limits are repaid on a cents-on-the-dollar basis.

Understanding FDIC and NCUA insurance is essential for consumers to ensure financial security and make informed decisions. We answer some of the most common questions about deposit insurance here.