The FDIC and Deposit Insurance
The Federal Deposit Insurance Corporation or FDIC is an independent U.S. government agency that provides deposit insurance for bank deposits. You’ve probably seen the sticker on the window of your bank or savings association indicating that the institution’s deposits are insured by the FDIC. Congress established the FDIC during the Great Depression to insure bank deposits and promote financial stability by reducing the likelihood of bank runs such as those that distressed the banking system during the Depression.
FDIC deposit insurance is funded by premiums that banks and thrifts are assessed each quarter. The exact amounts of these insurance premiums are based on each institution’s level of capitalization and supervisory rating, as well as financial ratios measuring income and loan delinquencies (for most institutions) or debt-issuer ratings (for large institutions).1 In addition to providing deposit insurance, the FDIC also is one of the federal banking regulatory agencies.
To learn more about the FDIC and deposit insurance, I recommend you review the FDIC’s website. It provides important information on deposit insurance and what it means for bank depositors. Below are a few excerpts from that website to get you started:
The FDIC protects you against the loss of your deposits if an FDIC-insured bank or savings association fails. FDIC insurance is backed by the full faith and credit of the United States government. The term “insured bank” is used…to mean any bank or savings association with FDIC insurance.
All FDIC-insured banks must meet high standards for financial strength and stability. The FDIC, with other federal and state regulatory agencies, regularly reviews the operations of insured banks to ensure these standards are met. Even with these safeguards, some insured banks fail. If your insured bank fails, FDIC insurance will cover your deposits, dollar for dollar, including principal and any accrued interest, up to the insurance limit.
Historically, insured deposits are available to customers of a failed bank within just a few days. Since the start of the FDIC in 1933, no depositor has ever lost a penny of insured deposits.
What Does the FDIC Insure?
The FDIC insures all deposits at insured banks, including checking, NOW and savings accounts, money market deposit accounts, and certificates of deposit, up to the insurance limit.
The FDIC does not insure the money you invest in stocks, bonds, mutual funds, life insurance policies, annuities, or municipal securities, even if you purchased these products from an insured bank.
Basic Insurance Amount Is $100,000
The basic insurance amount is $100,000 per depositor per insured bank. Certain retirement accounts, such as individual retirement accounts (IRAs), are insured up to $250,000 per depositor per insured bank.
History of Deposit Insurance Coverage
Now that we’ve covered the FDIC and described deposit insurance, let’s look at your question about the history of deposit insurance coverage in the U.S. As of 2007, deposit insurance coverage per depositor per insured bank is $100,000, and it has been set at that amount since 1980, when the Depository Institutions and Monetary Control Act of 1980 last raised the coverage on deposit insurance. The FDIC publication, A Brief History of Deposit Insurance describes the series of changes in deposit insurance coverage up to 1980:
There were three increases in the insurance coverage limit during the years 1942 to 1970. Coverage was raised from $5,000 to $10,000 in 1950, to $15,000 in 1966, and to $20,000 in 1969. (p. 45).
In 1974, deposit insurance coverage was increased from $20,000 to $40,000, and to $100,000 for deposits held by states and political subdivisions. Coverage was increased to $100,000 for IRA and Keogh accounts in 1978. In 1980, despite the reservations of the FDIC, deposit insurance coverage for all accounts was increased to $100,000 by provisions of the Depository Institutions Deregulation and Monetary Control Act. This last increase represented a departure from previous changes in insurance coverage, which generally had been more modest and more or less reflected changes in the price level. The increase to $100,000 was not designed to keep pace with inflation but rather was in recognition that many banks and savings-and-loan associations, facing disintermediation in a high interest-rate climate, had sizable amounts of large certificates of deposit (CDs) outstanding. The new limit facilitated retention of some of these deposits and attraction of new deposits to offset some of the outflows. In 1980, only time accounts with balances in excess of $100,000 were exempt from interest rate ceilings. (p. 51)
So, that’s a very brief history of the FDIC’s deposit insurance coverage in the U.S. since the 1940s.
1. See “Deposit Insurance Assessments” on the FDIC website for additional details on how deposit insurance premiums are assessed.
“Frequently Asked Questions about Deposit Insurance Coverage.” FDIC website.
Electronic Deposit Insurance Estimator (EDIE), FDIC website.
Federal Deposit Insurance Corporation (1998). A Brief History of Deposit Insurance.
Federal Deposit Insurance Corporation (FDIC) website, accessed March 2008.