Background

• The FDIC is a United States government corporation charged with monitoring and ensuring the financial stability of banks and other financial institutions. As a crucial part of its function, the FDIC insures the balances of qualified accounts at member banks and financial institutions. Most United States' banks and financial institutions are members of the FDIC. This insurance helps maintain stability and confidence in the banking system and is designed to prevent "bank runs" -- where depositors rush to withdrawal funds from a failing bank.
  
  

Function

• The FDIC insures deposits out of a Deposit Insurance Fund, or DIF. Member banks are required to pay a fee, based on insured bank liabilities on deposit, to the DIF. When a bank or financial institution fails, the FDIC typically becomes the receiver of the bank, settling the bank's debt obligations and collecting assets owed to the bank. Any shortfalls from bank obligations exceeding bank assets is typically met from funds accumulated in the DIF.
  
  

Qualified Accounts

• Most demand and time deposits at member banks and other financial institutions qualify for FDIC insurance protection. These include savings accounts, checking accounts, Certificates of Deposit and some types on Individual Retirement Accounts. Typically, mutual fund accounts, stocks, bonds, annuities or life insurance policies held with banks and other financial institutions do not qualify for FDIC insurance protection. Money market deposit accounts may qualify if the underlying investments represent bank obligations and not investments in money market securities.
  
  

Businesses

• Businesses, whether a sole proprietorship, partnership, S-corporation, traditional corporation, LLC or charitable organization are all eligible for FDIC insurance protection. Businesses should be especially aware of the $250,000 per depositor, per insured bank limitation on insurance. Businesses with multiple accounts at the same bank must aggregate the balances of all accounts when determining whether balances exceed the $250,000 insured maximum. In addition, a sole proprietorship, where the business is not legally separate from the owner, should be aware that the $250,000 limitation applies to all business and individual deposits held at the bank.
  
  

Warning

• FDIC protection does not provide absolute assurance the insured deposit is reimbursed given a bank failure. If a significant number of banks, and especially any of the major national retail banks, were to become insolvent, it is possible that the DIF would not have sufficient funds to reimburse insured depositors. Before defaulting, it is likely the FDIC would either increase assessments on solvent banks or borrow from the U.S. Treasury. As a result, FDIC insured investments are considered nearly as secure as U.S. Treasury investments, which are backed by the full faith and credit of the United States Government.