Personal Finance 101: What Does FDIC Insurance Really Mean?

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

But what exactly is it?

Charlie writes in:

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

(I edited out the bank in Charlie’s question for privacy reasons.)

What Is FDIC Insurance?
FDIC insurance refers to insurance policies created by the Federal Deposit Insurance 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 bank, that bank purchases insurance on that account for you from the FDIC.

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

Most banks that operate in the United States buy this insurance. When they do, they’re required to display the FDIC logo on signs in their business as well as on their websites.

FDIC insurance insures deposits up to …