What does the FDIC mean to your money?

Posted by Matt Simon on Nov 7, 2009

Do you put a part of your hard-earned savings into a bank account each month with the idea that it is in a safe place?  Most of us do, and for good reason: because our banks are insured by the Federal Deposit Insurance Corporation (FDIC). But what exactly does FDIC coverage bring us?

To understand, it helps to know that the FDIC came about from the Great Depression when the banks were overwhelmed by hordes of everyday people pulling their money out because of fear... This contributed so greatly to the overall economic problem that a government entity was created to bring confidence to banking for all of us.

How it works:

The FDIC actually uses the full faith and credit of the US Government to back your deposits up to a limit of $250,000...

That means that they have the power to tax and issue bonds in order to cover any losses you would otherwise have. The current $250,000 limit, by the way, is a temporary raise from the traditional $100,000 in response to the current US banking crisis.  The new limit will expire at the end of 2013, unless a new law is voted in.  This basically means that for the time being, the FDIC is covering your deposits up to this limit regardless of what happens to the bank where your savings are held.  Your bank can go out of business and your savings will be returned to you, no questions asked.  Still, you may wonder about the details of how this works...

So, what happens when a bank fails?

Well, about 80 US banks have failed since 2008 so we have plenty of information about the process. Here's what happens:

First, the FDIC comes in and takes over the bank, which is officially called receivership...

Next, the FDIC returns money to the bank's depositors and finds other banks to buy the loans from the defunct bank.

This is all great and ensures the safety of your money, but what do YOU need to do to make sure the system works for YOU?

It's really quite simple:

Just make sure that all of your deposits are FDIC covered and then you can have peace of mind.

Now, wasn't that easy?  We love it when things work in your favor!

All of us here at Hill & Hamilton wish you, your family and your business continued financial prosperity.

Photo by cliff1066

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