Understanding FDIC Insurance for Depositors

FDIC explained

Advantages to Choosing an FDIC Insured Bank

The Federal Deposit Insurance Corporation (FDIC) is an agency of the US government that protects bank depositors against the loss of insured deposits. FDIC insurance is backed fully by the US government if an FDIC-insured bank or savings association fails.  Any sum up to $250,000 in a bank account that is FDIC insured would be reimbursed if the bank fails.

The FDIC was created after a four-year period that saw nearly 10,000 U.S. banks fail or suspend operations following the Stock Market Crash of 1929 and the onset of the Great Depression. Banks did not possess enough money in their vaults to meet depositors’ demands. They had to close their doors, leaving families without their savings.  As part of the Banking Act of 1933, the FDIC was created to restore the faith of panicked Americans.

In the modern savings and loan system, deposits are funneled to make new loans to generate revenue from the interest. The federal government requires that banks keep 10% of any deposit.  That means that 90% of the deposit can be used for loans. If an FDIC-insured bank cannot meet deposit obligations, the FDIC steps in and pays insurance to depositors on their accounts.  This article will take a closer look at FDIC deposit insurance.

What happens when a bank fails?

Once a bank fails, the bank itself is assumed by the FDIC. The FDIC sells the bank’s assets and pays off any debts owed. The account holders get their funds back almost immediately. If the deposit exceeds the limit, they must wait until the FDIC sells off the bank’s assets to recoup any excess. FDIC-insured banks must display an official sign at each teller window or station where deposits are regularly received. Depositors can verify if a bank is an FDIC member at FDIC.gov.

What are the advantages and disadvantages of FDIC-insured accounts?


  1. Peace of Mind: FDIC insurance provides depositors with peace of mind, knowing that their deposits are safe, even if the bank or savings institution fails. This is particularly important for people who have a large amount of savings.
  2. Protection of Deposits: FDIC insurance protects deposits up to $250,000 per depositor per account type at each insured bank or savings institution. This means that if a depositor has multiple accounts at the same bank or savings institution, they may be covered for more than $250,000.
  3. Easy Access to Funds: FDIC-insured accounts, such as savings accounts and certificates of deposit, are easily accessible. Depositors can withdraw their funds at any time without penalty.
  4. Low Risk: FDIC-insured accounts are considered low-risk investments because the full faith and credit of the US government back the FDIC.


  1. Low-Interest Rates: FDIC-insured accounts typically offer lower interest rates compared to other investment options, such as stocks or mutual funds. This means that depositors may earn less interest on their deposits.
  2. Limited Protection: FDIC insurance only covers up to $250,000 per depositor per account type at each insured bank or savings institution. This means that if a depositor has more than $250,000 in one account or in multiple accounts at the same bank or savings institution, the excess amount may not be covered by FDIC insurance.
  3. Inflation Risk: FDIC-insured accounts may not keep pace with inflation. Inflation reduces the value of money over time, so depositors may lose purchasing power if the interest rate earned on their deposit does not keep up with inflation.
  4. Bank Failure Risk: FDIC insurance does not protect against the risk of a bank or savings institution failing. Although FDIC insurance may protect depositors if a bank fails, it is still possible for depositors to lose some or all of their deposits if a bank or savings institution fails.

What is covered by FDIC insurance?

FDIC deposit insurance coverage depends on whether your chosen financial product is a deposit product and your bank is FDIC-insured.

FDIC insurance covers several types of deposits:

  • Checking accounts
  • Negotiable Order of Withdrawal (NOW) accounts
  • Savings accounts
  • Money Market Deposit Accounts (MMDAs)
  • Time deposits such as certificates of deposit (CDs)
  • Cashier’s checks, money orders, and other official items issued by a bank

FDIC insurance does NOT cover investments of any sort:

  • Stocks
  • Bonds
  • Mutual funds
  • Crypto assets
  • Life insurance policies
  • Annuities
  • Municipal Securities
  • Safe deposit box contents
  • US Treasury bills, bonds, or notes

FDIC insurance covers traditional deposit accounts, and depositors do not need to apply for FDIC insurance. Coverage is automatic whenever a deposit account is opened at an FDIC-insured bank or financial institution. If you are interested in FDIC deposit insurance coverage, make sure you are placing your funds in a deposit product at the bank.

.The banking system will always be more than just a place to keep money. The economy depends on banks’ lending or investing the money back out to people or businesses. So, deposited money MUST be lent and invested back out.  It is false to believe that banks can best protect money by just sitting on it.  That would lead to economic failure. The public, therefore, must trust banks.

Jarrettsville Federal – An FDIC Insured Community Bank to Meet All Of Your Needs

Some institutions limit their offerings, others outsource services, and some, like Jarrettsville Federal, provide everything you need in-house. It is a community bank that its depositors mutually own. They are just like a credit union, only they pay taxes, and there are no stockholders.

You will feel a sense of belonging at Jarrettsville Federal.  Jarrettsville Federal Savings and Loan put down roots in the community in 1869 as a strong, stable financial institution.  Over the past 154 + years, they have developed relationships that span generations.

Today, Jarrettsville Federal continues to thrive with checking, savings, and loan products that meet their customer’s needs, technology that brings them into the future, and community service that gives back to them. Contact Jarrettsville Federal Bank at 410-692-5151 or visit our website.  We look forward to supporting you with all of your banking needs.