FDIC Insured Banking Doesn’t Mean What You Think It Means: The Truth About Securing Your Savings

Today we’re going to talk about a government agency you’ve probably never thought about much before: the Federal Deposit Insurance Corporation. But first, a little family history.

My grandparents went through it.

My grandmother endured a childhood in fascist Italy during World War II. At 12, she passed Nazi soldiers carrying supplies for the Italian resistance in her bike basket. She nearly starved on a diet of yogurt, carrots, and eggs, and she saw her neighbors murdered in the street.

When she grew up she met an American soldier on leave in Rome—my grandfather. He was a light-skinned mixed race man who grew up poor in the deep South. When he was 18, his teeth were kicked out in a fight when his black school’s football team beat the white school. After the army, he chose to pass as white for the rest of his life.

So you can see why these two were exceedingly cautious about most things. Their lived experiences didn’t exactly breed trust in the wider world!

Even so, they were convinced to invest in the stock market in the 1960s… without fully understanding it. The first time the market hit a major downturn, they watched their investments plummet, panicked, and pulled what was left of their money out of the market. Nonna and Papi swore off investing forever after that.

Instead, they put all of their money in an FDIC-insured bank account. When that account reached the maximum insured amount… they opened another account at another bank. And another. And another.

By the time my grandfather died at age 94, they had saved over a million dollars, scattered across multiple banks. It was a massive headache for my dad and his siblings to run around finding, consolidating, and organizing the accounts to secure elder care for my grandmother.

This little family fable holds an important lesson about money management. So today we’re going to discuss what my darling grandparents got wrong about the FDIC, what they could’ve done differently, and why I don’t blame them at all for the choices they made. Andiamo!

What the hell is the FDIC?

The Federal Deposit Insurance Corporation (FDIC) is an independent agency created by Congress to maintain stability and public confidence in the nation’s financial system. To accomplish this mission, the FDIC insures deposits; examines and supervises financial institutions for safety, soundness, and consumer protection; makes large and complex financial institutions resolvable; and manages receiverships.

– FDIC.gov

In other words, the FDIC insures money you’ve deposited in a bank. So if anything happens—fraud, theft, or bank collapse, for example—you’ll get your money back safe and sound.

And that all sounds pretty neat!

The FDIC dates back to a pretty grim time in American history: the Great Depression. The government created it through the Glass-Steagall Banking Act of 1933 as a way to get people to trust banks again. At the time, the maximum FDIC-insured amount was $2,500—literally 1/100th of the $250,000 the FDIC has insured since the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. (They’ve raised the amount several times over the last century. Ain’t inflation a wonder?)

If you’ve ever seen or heard a bank advertisement (and you have eyeballs and earholes, do you not?), you’ve probably encountered the term “FDIC-insured.” But you’ve also never received a bill for insurance from the FDIC. This is because banks pay the FDIC to insure your money, making the FDIC kinda just GEICO for banks.

But as with most insurance companies, there are limitations on which bank accounts are insured, what exactly gets insured, and how the insurance company handles claims. And it’s there that my beloved Olds (and most other Americans) get the FDIC wrong.

Before we go any further, you should make sure you understand a few core concepts like how bank accounts, inflation, and the stock market work. Fortunately for you, in our infinite benevolence we have already covered these topics at length:

• When Money in the Bank Is a Bad Thing: Understanding Inflation and Depreciation
• Cheat on Your Bank—It’s Not Your Girlfriend
• Wait… Did I Just Lose All My Money Investing in the Stock Market? 
• Investing Deathmatch: Timing the Market vs. Time IN the Market 

Which banks are insured by the FDIC?

If you learn nothing else from this article, learn this: NOT EVERY FINANCIAL INSTITUTION IS FDIC-INSURED. This is for reasons both legitimate… and underhanded!

You can easily determine if the FDIC insures a particular bank with their handy dandy bank finder tool.

When shopping around for a bank and account type that suits your personal needs, you should include FDIC insurance on your list of must-haves. Because not only is FDIC insurance a safe and useful thing to have, it’s also required of every U.S. bank whether it’s chartered by a state or the federal government. It’s not simply an indication of a smart, appropriately risk-averse, and reputable bank. It’s a litmus test for law-abiding, above-board banking activities.

So if you’re considering a savings or checking account at a bank and find it does not have FDIC insurance…

FDIC insurance is not just a basic precautionary measure, it’s the law! Even banks that have gotten up to some questionably shady shit over the years (LOOKIN AT YOU, WELLS FARGO) understand that FDIC insurance is both the minimum assurance they can offer to their customers as well as the minimum requirement they must meet to even accept deposits.

Which probably means that if they could get away with it, a lot of banks would just… not pay for insurance.

What’s that? No, I don’t struggle with trust issues linked to generational trauma. Why do you ask?

Why wouldn’t a bank be FDIC-insured?

There are four main reasons why a financial institution might not have FDIC insurance. They are as follows:

1. The credit union exception

Ah, credit unions. We love ’em! They align perfectly with our pro-labor, pro-consumer protections, pro-regulating capitalism stance here at Bitches Get Riches.

But while having almost everything in common with banks, banks they are not. Which means credit unions… do not have FDIC insurance.

Which is ok! Because they’re instead insured by the National Credit Union Administration (NCUA), a governmental organization that serves the same function as the FDIC. In fact, the credit union to NCUA relationship is so similar to the bank to FDIC relationship that I’m not even going to break it down here. Suffice it to say that if you’re considering a credit union over a bank, making sure it has NCUA insurance is just like making sure a bank has FDIC insurance.

2. The private insurance exception

But what if your bank or credit union has neither form of government-backed deposit insurance?

Believe it or not, some states and territories allow credit unions to forego government-run insurance through the NCUA and instead pay for private deposit insurance. I say “believe it or not” because this is, on its face, the sort of self-evidently bad idea that causes libertarians to fall head-first into the No True Scotsman fallacy.

Private insurance companies fail all the time! And in the case of deposit insurance, a 1991 bank run in Rhode Island caused a credit union’s private insurance company to totally collapse. People lost money they thought was insured and the state government had to step in and clean up the mess.

Meanwhile, since its inception the FDIC has made sure that “no depositor has lost a penny of insured funds as a result of a failure.”

So I’ll be sticking with the FDIC and NCUA, thank you very much.

3. The foreign bank exception

Foreign banks aren’t subject to U.S. laws about FDIC insurance.

But they are subject to the financial laws of their home countries, most of which have their own equivalent of the FDIC. (Le Joost Een Case Fund du Banc being the French equivalent, I presume.)

4. The not-actually-a-bank exception

Credit unions aren’t eligible for FDIC insurance because they’re technically not banks. It follows, therefore, that if a financial institution is not a bank, it has no legal requirement to get FDIC insurance.

This makes total sense with bank-adjacent companies like, say, an insurance broker or investment firm. Sure, they handle large chunks’o’change, but they’re not actually holding that cash as deposits, so the Federal Deposit Insurance Corporation doesn’t have jurisdiction.

But what about fintechs?

Here lies the most obvious way of getting around the FDIC: fintech companies and third-party apps that work with banks and accept deposits but aren’t technically banks themselves are not required to have FDIC insurance. Two of the biggest culprits are currently Chime and Stash.

But remember Synapse Financial Technologies? That technically-not-a-bank that melted down in the spring of 2024 and took gajillions of uninsured savings with it?

Fintechs are very careful to reassure customers that their money is FDIC-insured through their partner banks. Especially in the aftermath of the Synapse bankruptcy. But I’d be real careful to check the fine print on that agreement before assuming my deposits are safe.

Oh, and if it’s not clear by now, if an actual bank or credit union doesn’t have any form of deposit insurance… they’re breaking the law and you should give them a wide berth.

What kinds of accounts are FDIC-insured?

The FDIC insures deposits, not investments or other kinds of assets. Here’s a handy guide to what they do and do not cover:

Some of these are surprising, some not so much.

Treasury Bonds and T-Bills, for example, aren’t covered by FDIC insurance because they’re “backed by the full faith and credit of the U.S. government.” That’s like having a different insurance policy for your dental care as opposed to your vision care. (Do I have time to talk about how weird it is that eyes and teeth are not considered part of your body when buying health insurance? No, I do not. Does it enrage and confound me? Yes it does!)

More concerning is the fact that what you put in your safe deposit box at a bank isn’t insured. My research wasn’t totally reassuring on this one. Supposedly it’s because federal law does not consider safe deposit boxes a “deposit account,” and therefore, their contents isn’t eligible for FDIC insurance. Sounds like an unnecessary technicality, but do with that what you will.

Investment accounts aren’t FDIC-insured for exactly the reasons my grandparents discovered: because markets are constantly fluctuating. The value of your stocks, bonds, and other investments is completely dependent on market conditions over time. No one, not even your wise yet humble Bitches, can guarantee your rate of return from the stock market. You cannot—nor should you want to!—insure a constantly moving target.

Oh and… I really hope I don’t need to explain why crypto isn’t FDIC-insured.

How much does the FDIC really insure?

If you’re using my grandparents’ playbook, you’re probably thinking you’ll put no more than $250,000 in a single bank account before opening another one to stay fully insured. (Assuming you manage to save that much money all at once without investing, which… for the sake of my point here let’s pretend is a rational probability.)

But let’s take a look at the FDIC’s fine print:

FDIC deposit insurance covers $250,000 per depositor, per FDIC-insured bank, for each account ownership category.
– FDIC.gov

The key phrases here are “per depositor” and “each account ownership category.” So, to return to my familial example, my Nonna and Papi each counted as a depositor on their joint savings account. So as of 2010, the FDIC would have insured that account not for $250,000… but for twice that, or $500,000.

Or let’s say that in addition to their savings account, they had a trust for their kids at the same bank. That trust could’ve been insured for up to $1,250,000 per owner. At two owners, that’s $2,500,000 divided among six kids, or $416,666 per kid.

I’m not great at math but I thiiiiiink that’s a whole lot more money insured than $250,000.

I thought about creating another handy dandy table here to illustrate exactly how much money it’s possible for one family to insure through the FDIC at a single bank… but I didn’t want to overwhelm you with my incredible technical skills.

Plus, the FDIC has an Electronic Deposit Insurance Estimator (EDIE) that will do the job for me. There you can input the name and location of an individual bank, your account type, as well as the bank balance to make sure your money is fully FDIC-insured. It’s very reassuring.

You should never need maximum FDIC insurance

I’ve made a big deal in this article about how much money the FDIC will insure for you. But here’s the thing: You should almost never need maximum FDIC insurance.

If you have at least $250,000 you can afford to keep in a deposit account for an extended period… then holy shit my dude, you should be doing something else with that money! Letting it waste away in a checking or savings account, not accruing interest, is literally letting it waste away. WE’VE. BEEN. OVER. THIS. Money that doesn’t earn interest is money that loses value due to inflation. It’s called depreciation.

At the very least, you should put that kind of money in a CD (notably FDIC-insured, see above) where it’ll earn a small but secure amount of interest. But it would be far better off invested in the stock market, a small business, or real estate.

It’s great to have the peace of mind that comes with FDIC insurance. My grandparents certainly thought so! But as they say: “No risk, no reward.” (Who’s they? Nobody knows! But I’m sure they’re smart.)

So make sure your money isn’t sitting around getting smaller when it could be working hard to make you more money.

What else does the FDIC do?

The FDIC doesn’t just insure your deposits. It also…

• conducts oversight to ensure that banks aren’t up to shady shit!
• examines banks for compliance with a whole host of consumer protection laws, like the Fair Credit Billing Act, Fair Credit Reporting Act, Truth in Lending Act, Fair Debt Collection Practices Act, and Community Reinvestment Act!
• monitors smaller banks to warn them if they’re taking on too much risk, effectively catching problems before they have the chance to escalate!
• leaps into action when a bank fails, resolving the situation and making the depositors whole!
• is led by a board of directors including the Director of the Consumer Financial Protection Bureau!

Wait.

The CFPB?

The governmental agency whose sole purpose is to protect us from fraud, corporate overreach, and predatory business practices? That CFPB? The one whose staff DOGE tried to cut by 90%? This one?:

That’s right: The FDIC is under threat too

I don’t want to keep doing this, you guys! Do you think I like Cassandraing all over the public library and USAID and Medicaid and the CFPB and the fucking FDIC?

Nevertheless, here I am once again lighting the beacons for a governmental institution so gd boring I had to trick you all into reading this with a salacious headline. The beacons are lit! Gondor calls for aid!

The truth is that while we were all nervously watching DOGE gut the CFPB, its closely linked sister agency, the FDIC, was already quietly drowning. Even before Trump took office and gave his chainsaw-wielding pet techbro carte blanche to hamstring our administrative state, the FDIC was understaffed. Losing over 500 employees during the DOGE frenzy absolutely did not help.

And look, I’m not saying the FDIC is a perfect paragon of governmental efficiency. By all accounts, the agency had problems even before Donny T. took office. But the Trump administration’s plans for the FDIC seem to revolve not around strengthening and improving the organization, but weakening financial regulations in general and the CFPB and FDIC in particular.

The entire point of the FDIC is to insure your money. Without the FDIC, how exactly will we know our deposits are safe? And if we can’t even trust that our savings are secure… [trails off into ominous silence]

The most infuriating part about the DOGE cuts is that fucking with the FDIC neither makes our government more efficient nor saves it any money. The FDIC is funded entirely by banks, not the tax dollars of individual citizens.

Man… if only I’d written this article sooner! Perhaps my persuasive style of internet sleuthing and clever wordplay could’ve convinced our tyrannical overlords to change their policies towards consumer protections!

In the meantime, you should call your elected representatives and tell them you’d prefer the government keep insuring your money through the FDIC.

The hidden truth behind the FDIC

I started with a headline that told y’all there was some dark secret hiding in the bowels of FDIC insurance. And you probably thought I meant that in a bad way!

NOPE! I just wanted to get your attention, which is a spectacularly difficult thing to do when the topic at hand is finance plus insurance—a dull combination with the power to shrivel the mental boner of even the most pedantic of nerds!

As you can see, the truth behind the FDIC is that it’s actually more generous and accommodating than most of us previously understood. It does more for the average bank customer than just insure up to $250,000, at literally zero cost to any of us.

For once, some good news!

FDIC insurance at work

Just to drive home the point, let’s review an example: the Silicon Valley Bank crash of 2023. A bunch of VC tech bro types worked themselves into a self-inflicted bank implosion that would have been disastrous for the bank’s customers… if it hadn’t been for their FDIC insurance.

Paying those insurance premiums meant that while the bank was forced to dissolve, its customers didn’t have to pay the price of the bankers’ incompetence. Instead, the FDIC swooped in, majestic cape a’flappin’, and rescued every beleaguered savings and checking account at SVB with the kind of banal competence we take for granted in a functioning governmental agency.

But the FDIC didn’t stop there. Part of the problem behind the crash was that Silicon Valley Bank’s customer base was made up of largely… well, Silicon Valley tech startups and entrepreneurs with assets well over the FDIC-insured limits held at SVB. But because of an emergency ruling by the FDIC known as a systemic risk exception, the FDIC was able to make all of SVB’s customer’s whole.

The FDIC saved SVB’s asses by taking over the bank and transferring all assets—even non-FDIC-insured money!—to a bridge bank so customers could be made whole.

Maybe I’m being overly generous in my interpretation here, but… when’s the last time you heard of a private insurance corporation going above and beyond to make sure its customers ended up ok?

Personal finance is personal

My grandparents weren’t exactly wrong for having multiple bank accounts! After all, I’ve written before about how it can be beneficial to shop around for the right kind of account for your purposes, even if that means you open accounts at multiple banks.

And they weren’t necessarily wrong for not trusting financial institutions beyond the amount they thought the FDIC insured! But a little bit more financial education could’ve benefitted them enormously. Even without investing in the stock market, they would have been a lot better off diversifying their assets and accounts. They could have put money in an HSA, bought additional property, invested in small businesses. They had three biological children and three foster children, all of whom would have benefitted from a trust.

And yes, staying invested in the stock market would have significantly improved their potential net worth.

Again though… they were both survivors of significant trauma. Nonna left her country of birth to seek safety in a more stable country. And Papi spent seventy years hiding his true racial identity for fear of racist violence. It gave them enormous peace of mind to know that their financial savings were insured. Even if their understanding of that insurance was basic and flawed.

Investing in the stock market was too stressful and volatile for my grandparents. They were justifiably risk-averse. This is what we mean when we talk about how personal finance is personal.

But the lesson I want you all to take away from my family’s story is this: educate yourself. Knowledge of the FDIC and how it actually worked could’ve made their lives much easier… and much, much richer.