FDIC Insurance—What is It and Why is It Important?

The FDIC (Federal Deposit Insurance Corporation) is an independent agency of the U.S. government. This agency was created 90 years ago to protect bank depositors against the loss of their insured deposits if an FDIC-insured bank fails. FDIC insurance is backed by the full faith and credit of the U.S. government.

What accounts are covered by the FDIC and which accounts are not?

FDIC insurance covers traditional deposit accounts. This coverage is automatically applied when a deposit account is opened at an FDIC-insured bank.

Here are examples of accounts that are covered and not covered by FDIC insurance.

How much of my account is insured?

The standard deposit insurance amount is $250,000 per depositor, per FDIC-insured bank, for each account ownership category. The term “ownership categories” means that a bank customer who has multiple accounts may qualify for more than $250,000 in insurance coverage if the funds are deposited into different ownership categories and other certain requirements are met. Examples of ownership accounts include:

• Single accounts
• Joint accounts
• Revocable trust accounts
• Irrevocable trust accounts
• Certain retirement accounts
• Employee benefit plan accounts
• Business accounts
• Government accounts

What is SIPC insurance and how does it differ from FDIC insurance?

The Securities Investor Protection Act, passed in 1970, created SIPC (Securities Investor Protection Corporation). SIPC protects against the loss of cash and securities (stocks and bonds) held at a SIPC member brokerage firm. The insurance limit is $500,000 per customer for all accounts at the same institution, which includes a $250,000 limit for cash. However, many brokerage firms have excess SIPC insurance through private insurers that provides protection of securities and cash at much higher insurance limits.

This protection is limited, meaning SIPC only protects the custody function of the broker-dealer. SIPC works to restore securities and cash in their accounts when the brokerage firm liquidation begins. It is important to note that SIPC insurance does not protect against a decline in the value of securities, individuals who are sold worthless securities, or losses due to a broker’s investment advice.

This protection differs from FDIC insurance in that SIPC does not protect the value of any security since investments in the stock market fluctuate in market value.

Speak with a Jemma Financial Advisor

Jemma Financial is committed to providing the highest level of protection for your accounts. A Jemma Financial Advisor is available to answer any questions you may have about either FDIC or SIPC insurance and how this protects your account.