By Amy Miller, AFC®
Recent events in the financial industry have led many Americans to ask what happens when a bank fails and whether their money at their financial institution is insured. Below, we’ll review a few things everyone should know about federal deposit insurance coverage, how it works, and how you can find out if your funds are fully covered.
FDIC – Federal Deposit Insurance Corporation & NCUA – National Credit Union Administration
The FDIC was created by Congress and signed into law by President Roosevelt in 1933 as a U.S. Government-backed, independent agency to oversee financial institutions and protect consumers against the loss of deposits if an insured bank fails.
When originally created, deposits were covered up to $2,500. Today, deposits insured by the FDIC will be reimbursed up to $250,000 per depositor, per bank, per account category.
While banks are insured by the FDIC, credit unions are insured by the National Credit Union Association (NCUA), which is similar to the FDIC, or insured privately. Credit unions are chartered federally or by the state where their main office is located. State-chartered credit unions may be privately insured rather than by the NCUA. Like the FDIC, the NCUA was also created by Congress to insure deposits at credit unions and protect their members. The NCUA also insures deposits up to $250,000.00.
Account Categories
Funds are insured based on their ownership category. Common ownership categories are individual accounts, joint accounts, and revocable trust accounts. These categories are not to be confused with account types like checking, savings, CDs, or money markets.
Deposits in each category, whether in one account or divided into several accounts, are added together and insured up to the $250,000 limit.
Calculating Your Coverage
Both the FDIC and NCUA offer calculators that you can use to verify your coverage based upon your account balances and categories.
The FDIC’s online calculator and the NCUA’s online share insurance estimator tools compute coverage per financial institution. You will need to enter a title for each account, its ownership category (single, joint, if it has beneficiaries, etc.) and the balances. Once you have entered all accounts that are held at the same institution, you can download a coverage report that will show if you are fully covered or if any of your deposits are uninsured.
Checking for Coverage
To check a financial institution’s FDIC coverage, you can search the BankFind database on their website. There, you can gather information about a financial institution including its history and insurance coverage. You can also contact the FDIC directly by calling 1-877-275-3342.
You can research a credit union online using the NCUA’s find a credit union tool.
What Happens when a Bank Fails?
A bank failure is declared when the institution is unable to meet its obligations and is closed by a federal or state regulatory agency. Banks can fail for a number of reasons, including a “run on the bank” as we’ve recently seen in the news.
A run on a bank occurs when account holders withdraw their funds out of fear the bank will fail, resulting in the bank being unable to cover the large demand of withdrawals all at once. When this occurs, the FDIC or NCUA’s insurance coverage steps in to reimburse account holders their insured deposits. They will also work to sell the bank’s assets and settle its debts.
For more information on FDIC coverage, you can review their FAQs online, submit a request or question to their Information and Support Center or by calling 1-877-275-3342.
For more information on NCUA coverage, visit their Consumer Assistance Center online or by calling at 1-800-755-1030.