The Federal Deposit Insurance Corporation (FDIC) protects consumer bank deposits (like checking and savings accounts) when the holding bank fails.

The FDIC, explained

The FDIC is an independent agency of the federal government created in 1933 after thousands of banks failed. It’s designed to protect consumer financial deposits when banks themselves go “bankrupt.”

The FDIC is headquartered in Washington, D.C. and headed by a five-person President-appointed, Senate-confirmed Board of Directors, including the Comptroller of the Currency and Director of the Consumer Financial Protection Bureau. All funding comes from insurance premiums that banks pay to become FDIC members.

What does the FDIC do?

The FDIC’s main duties include:

• Insuring customer deposits at member banks
• Maintaining stability and confidence in the national financial system
• Examining and supervising financial institutions 
• Facilitating deposit transfers during bank failures

Deposit insurance

The FDIC offers standard insurance of $250,000 per depositor, per account type, per insured bank. Eligible accounts include:

• Standard checking and savings accounts
• Money market deposit accounts
• Certificates of Deposit (CDs)
• Official items like cashier’s checks and money orders
• Self-directed retirement accounts like IRAs
• Employee benefits plans like 401(k)s
• Bank-established revocable and irrevocable trusts
• Business and government-owned accounts

Note that the FDIC doesn’t insure investments, including stocks, bonds, mutual funds or Treasuries. The FDIC also doesn’t insure most monies held in apps like PayPal, though rules vary by circumstance.

Regulatory roles: supervision and examination

The FDIC is the primary regulatory agency for state-chartered banks outside the Federal Reserve System. It also serves as the back-up supervisor for the remaining insured banks and savings associations.

The FDIC ensures that banks comply with various consumer protection laws, among them:

• The Fair Credit Billing Act
• The Fair Credit Reporting Act
• The Truth in Lending Act
• The Fair Debt Collection Practices Act
• The Community Reinvestment Act

Resolutions 

Nearly every bank in the U.S. is a member of the FDIC. (Credit unions are insured instead by the National Credit Union Association, or NCUA, which fills a similar role.) If a member bank fails, the FDIC ensures that depositors get their money back, up to insured limits.

The FDIC can resolve bank failures in several ways. The most common is to sell the failed bank’s accounts to another bank. Customers of the failed bank automatically become customers of the new bank.

But when the FDIC can’t find another firm to acquire the failed bank, it pays depositors directly.

How does the FDIC affect you?

The FDIC is a crucial piece of financial infrastructure to protect consumers and the broader banking system alike. It’s there to help regulate the banking system and ensure legal compliance. And when banks fail, it ensures depositors don’t lose their savings.

But the FDIC has its limits: namely, it can’t protect most investment accounts. That’s a job for the SIPC. However, neither the FDIC nor the SIPC can protect your investments from financial downturns resulting from market volatility.

While there’s no insurer or brokerage that can guarantee investment success, you can take steps to limit risk, such as portfolio diversification and an age-adjusted strategy. If you’re feeling bold, you might even try Q.ai’s AI-backed Portfolio Protection for added…well, protection.

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