What Is and Is Not Protected by FDIC Insurance

In 2008, 2009 and 2010, we saw first-hand banks going bankrupt amid the worst recession since the Great Depression. Therefore, it is essential for you to confirm that your bank or credit union is insured by the FDIC (Federal Deposit Insurance Corporation).

According to the FDIC website, here’s what is and isn’t protected by FDIC insurance:

FDIC-Insured

  • Checking Accounts (including money market deposit accounts)
  • Savings Accounts (including passbook accounts)
  • Certificates of Deposit (CDs)
  • IRA Retirement Accounts

Not FDIC-Insured

  • Investments in mutual funds (stock, bond or money market mutual funds), whether purchased from a bank, brokerage or dealer

The FDIC insures deposits in banks and thrift institutions that are part of the federal insurance program for up to US$250,000 through December 31, 2013. This US$250,000 is a general per person per bank limit, and includes the aggregate value of your accounts at your bank. To confirm whether your institution is federally insured, go to the FDIC’s Bank Find service to find out if the institution is FDIC-insured.

CDs are thus a very safe and very conservative part of an investment portfolio. If you do not need to dip into your savings for a certain period of time and you want to place your money somewhere safe and sound while earning some income, CDs are a very good place to park your savings.

Some investors may prefer to park their money in mutual funds as they hold promise of a higher rate of return than say, CDs. Even though a money market mutual fund may invest in short-term CDs or securities such as Treasury bills and government or corporate bonds, don’t confuse that with an FDIC-insured money market deposit account or an FDIC-insured CD.

The Securities Investors Protection Corporation (SIPC), a non government entity, replaces missing stocks and other securities in customer accounts held by its members up to $500,000, including up to $100,000 in cash, if a member brokerage or bank brokerage subsidiary fails. The funds invested are not insured against loss in value, and since they are not deposits, they are not insured by the FDIC.