What is FDIC insurance?

How it works

Every member bank pays insurance premiums into the FDIC's Deposit Insurance Fund. When a bank fails, the FDIC takes it over (typically Friday after close), and depositors regain access — usually by Monday morning at the next business day — at another bank or directly via FDIC payment. Limit: $250,000 per depositor, per insured bank, per ownership category.

Coverage applies to:

• Checking accounts
• Savings accounts
• Money market deposit accounts (MMDAs)
• Certificates of deposit (CDs)
• Cashier's checks and money orders

It does NOT cover:

• Stocks, bonds, ETFs (those are SIPC territory at brokerage accounts)
• Mutual funds
• Crypto (no equivalent insurance exists)
• Safe deposit box contents
• Money lost to fraud (different protections may apply)

Example

A married couple wants to keep $1M of cash safely insured at one bank. Coverage caps:

• Joint account: $500,000 ($250k × 2 depositors)
• Joe's individual account: $250,000
• Mary's individual account: $250,000

Total: $1,000,000 fully insured at a single bank by stacking ownership categories. Above $1M, they'd need a second institution or look at programs like CDARS that auto-spread deposits across member banks.

When Silicon Valley Bank failed in March 2023, the FDIC normally would have only covered the first $250k of each depositor's balance — most SVB customers were tech companies with millions on deposit. Treasury invoked a "systemic risk exception" and made all depositors whole, but that was a special-case outcome, not normal procedure. The policy default is the $250k cap.

Why it matters

FDIC insurance is the foundation of why holding cash in a US bank is safe — even during banking stress. The 2023 banking scares (SVB, Signature, First Republic) tested the system; depositors were made whole. The track record since 1933 (when FDIC was created during the Great Depression) is over 99% of insured deposits recovered.

Practical implications:

• Always confirm "FDIC member" status. Member banks display the logo. Some neobanks aren't banks themselves — they partner with FDIC-member banks ("custodial deposit accounts"). Both work, but the structure matters: read the fine print on whose balance sheet your money sits on.
• Above $250k, spread accounts. Not just for safety — also for piece of mind during bank stress.
• Crypto exchanges don't have FDIC. "USD held at Coinbase" is not equivalent to a bank deposit. SIPC may cover some securities; cash at a crypto exchange is generally just an unsecured creditor claim if the exchange fails.
• Stablecoins aren't FDIC-insured either. USDC at Circle, USDT at Tether — neither has government backing for the issuer's solvency.

For long-term cash holdings (anything you can't afford to lose), the path of least risk is: FDIC-member bank, balance under $250k, or stacked across ownership categories/institutions if larger. Anywhere else — including stablecoins promising "5% APY on your dollars" — is taking additional risk in exchange for the yield.