Understanding Deposit Insurance


Understanding Deposit Insurance

Most of us have insurance on our homes or cars. But many people only realized the importance of deposit insurance after a couple of high-profile bank failures in 2023 – Silicon Valley Bank, Signature Bank, and First Republic Bank. Insurance coverage on your bank deposits is just as fundamental as on your tangible assets.

Trustworthy financial institutions have FDIC insurance, which was established with the Banking Act of 1933 during the Great Depression. But it’s important to understand both the benefits and limitations of this protection and the options available for greater coverage.

What is FDIC Insurance?

The Federal Deposit Insurance Corporation (FDIC) is a government agency that provides insurance to banks, effectively ensuring the safety of your deposited money. FDIC insurance covers deposits to at least $250,000 per account ownership type, per depositor, at insured banks. Covered account types typically include checking accounts, savings accounts, certificates of deposit (CDs), and money market accounts. This means in the unlikely event a bank fails, you would not lose the money you have in your deposit accounts, up to the insured limit.

“More than 99% of deposit accounts in the U.S. today are fully protected by the FDIC because they are under the deposit insurance coverage limit,” said Geri Bullard, Chief Financial Officer and Chief Operations Officer at First Fed, citing a FDIC statistic published in October 2023.

What if I have more than $250,000 in savings?

It's important to keep in mind that the $250,000 limit applies to each ownership category. This means that you can potentially have more than $250,000 insured with a single bank by holding different types of accounts, such as joint accounts, trust accounts, or retirement accounts. ICS (Insured Cash Sweep) and CDARS (Certificate of Deposit Account Registry Service) are also available to give you access to multi-million-dollar FDIC insurance coverage through a single bank relationship.

With ICS, your money is spread between different banks while keeping the management of your money all under one roof – your primary bank. This means your funds are protected by the FDIC insurance from multiple banks, so you can have more than $250,000 federally insured. You still manage your funds and receive statements through your primary bank. The benefit of the ICS system is that you still have regular access to your funds.

CDARS is perfect for those who love certificates of deposit. It allows you to invest amounts from $250,000 to multi-millions of dollars in CDs and still enjoy FDIC insurance. Your money gets spread across a network of CDARS banks, all while being managed through your trusted primary bank. Like ICS, you get the security you need without the hassle of dealing with multiple accounts or banks.

“Our bankers have experience helping customers navigate options to maximize FDIC coverage,” said Chris Neros, Chief Banking Officer. “We’re happy to meet to review the best way to augment your FDIC insurance protection for larger deposits.”

Is my community bank insured?

Community banks like First Fed are valued for the personalized service and strong community ties they offer in addition to being financially secure. These banks play a significant role in local economies, providing lending and financial services to businesses and individuals. If a community bank is protected by FDIC insurance, they will display the words “Member FDIC” or the Member FDIC logo on their website.

Smaller banks who are a Member FDIC offer the same level of deposit protection as larger banks. Whether you choose to bank with a national institution or a local community bank, your deposits are protected by FDIC insurance, up to the statutory limits. This means that even if your community bank encounters financial difficulties, your deposits remain secure.

“As a Member FDIC bank, First Fed offers the same protection as the larger national banks, but with the personal experience of a community bank,” said Neros.

How do I choose a trusted community bank?

While FDIC insurance ensures your deposits are safe, choosing the right community bank is equally important. When selecting a bank to entrust your money with, consider the following factors:

  • Reputation: Research the bank's history and reputation. A bank with a long-standing and positive track record is often a reliable choice.
  • Customer Service: Assess the level of customer service and the bank's commitment to your community. Personalized service and a strong community presence are often distinguishing features of community banks.
  • Financial Stability: Review the bank's financial reports and their Bauer Financial star rating to ensure it is in good financial health.
  • Product Offerings: Consider the bank's product offerings and how they align with your financial goals.
  • Location and Accessibility: Evaluate the bank's location and accessibility to ensure it meets your needs.
  • FDIC Insurance Coverage: Confirm that the bank is FDIC insured and understand how your deposits are protected.

“First Fed has been serving our communities for 100 years. We’ve grown steadily by earning their trust and delivering excellent service,” said Bullard. “Our customers know that their money is safe and secure with us.”

By understanding the workings of FDIC insurance and selecting a reputable community bank, you can confidently entrust your finances to a reliable institution that offers both quality service and peace of mind. Your hard-earned money deserves the best protection available, and FDIC insurance provides just that, but you also deserve a more personal touch from your banking relationship. To learn more about what accounts and services First Fed has to offer, visit ourfirstfed.com.

First Fed is a local member FDIC community bank and equal housing lender.