The FDIC is the federal deposit insurance corporation. It is a government organization designed to cover consumers individual deposit accounts from bank failure. The FDIC was established in the 1930′s and has remained intact to date.
The benefits of banking with an FDIC backed institution is that you don’t have to worry about your money being safe. The FDIC is backed by the credit of the US Government and no account holder covered by an FDIC institution has ever lost their money. Coverage is not something you have to apply for. It is automatically in place at every FDIC backed banking institution.
Low Limits
For decades, the limit of protection was set at $100,000. This meant that bankers often held accounts at many different banks. FDIC rules only allow one account of each type to be insured at each bank, up to $100,000. While accounts could be opened at any FDIC insured bank for coverage, they could not be opened at different branches of the same bank. For small businesses and wealthy, it could be a daunting task dividing up savings and checking accounts and having them located within many different banks.
Temporary New Limits
The limit of $100,000 had been in place since 1980. In 2008, the federal government raised the FDIC limit for bank deposits to $250,000. Some of this was in light of the poor economy when people lost confidence in the banking system and were wondering if they should be putting their money in flour sacks in the freezer. The government wanted individuals to have confidence in their banks and the stability of the government banking system. Another factor of the increase was general inflation since original limits were set in 1980.
The new FDIC limit of $250,000 allowed individuals greater control over their finances. They are less likely to have to divide up deposits through different banks. The limits affect different account types as follows:
- Single account holder savings and checking accounts: $250,000
- Joint account holders: $250,000 per account holder
- Trust accounts: $240,000 per owner or beneficiary
- Corporation or partnership accounts: $250,000 per account
- Government accounts: $250,000 per custodian
- Employee Benefit plans: $250,000 for the interest of each participant
While the new FDIC limits should help in restoring consumer confidence in the banking industry, most of us will not notice any difference in the insurance amounts. Most regular bankers do not carry balances over $100,000 or $250,000 either way. Most of the benefits are going to be noticed by small business owners and the wealthy.
Permanent Increase
As part of the Wall Street Reform signed into law by President Obama in 2010, federal insurance coverage on deposits at banks and credit unions will be permanently raised to $250,000. The limit mentioned had only been raised on a temporary basis during the financial crisis in 2008, and was scheduled to drop back down to $100,000 in 2014.