Personal Finance 101: What Does FDIC Insurance Really Mean?

One of the biggest things I inspire people to look for when they open a financial institution account is that the financial institution is FDIC insured. Most banks working in the United States offer this insurance. In an era where people are much more than a small worried about financial institution failures and the like, FDIC insurance is vital.

But what exactly is it?

Charlie writes in:

What exactly is FDIC insurance? How does it function? [A local financial institution] went under recently and appears to have been bought out by another financial institution and from what I understand the accounts are intact. Is that FDIC insurance at function?

(I edited out the financial institution in Charlie’s query for privacy reasons.)

What Is FDIC Insurance coverage?
FDIC insurance refers to insurance policies created by the Federal Deposit Insurance coverage Corporation, which is an organization wholly run by the government of the United States. The FDIC sells insurance policies to banks which insures the checking and savings accounts at those banks against the failure of those banks. Thus, when you open an account with a financial institution, that financial institution purchases insurance on that account for you from the FDIC.

FDIC insurance covers checking accounts, savings accounts, certificates of deposit, cash market accounts, and cashier’s checks. It does not cover stocks, bonds, mutual funds, cash market accounts, US treasuries, safe deposit box contents, or other this kind of objects.

Most banks that operate in the United States buy this insurance. When they do, they’re required to show the FDIC logo on indicators in their business as nicely as on their web sites.

FDIC insurance insures deposits up to ...