FDIC insurance works by making sure the books and investments of a bank are working properly, and by insuring deposits and bank accounts for at least $100,000. Find out how FDIC insurance works with advice from an investment portfolio manager in this free video on banks.
So, how does FDIC insurance work? Well, FDIC, first of all, stands for Federal Deposit Insurance Corporation. And it isn't the government. This works with the government, it's an agency, but the FDIC, what they will do is to watch banks and secure money that's been deposited there by consumers in case the bank becomes insolvent. Back in 1929, during the stock market crash and the Great Depression, and everybody's making runs on banks, and the banks were basically just shut down. And there was no protection. So, the FDIC, what they do is they watch the banks, and when they find out that a bank is getting to the point where they're just not going to be able to give money away and they've become insolvent, two things will happen. They'll go in. Bring in federal regulators. They'll look at the books, make sure everything's straight, and nothing crooked was going on. Secondly, they will bring in, more often than not, another bank will come in and, overnight, will buy out the assets, take ownership of it, and the bank will be open the very next day. And FDIC, they're main mission is to make sure that deposits, up to $100,000 are protected so you don't lose your money. Now, in 2008, October 3, 2008, there was an emergency act passed and that has brought up FDIC insurance to $250,000. But that only goes to December 31, 2009 as it stands now. That may be extended, but we don't know. As it stands right now, it's $250,000 of FDIC coverage until December 31, 2009.