A Guide to What Is and Is Not Protected by FDIC Insurance


So--you feel your cash is safe and protected when you walk through the door of the bank, much safer than when you kept it under your mattress. And you should.  BUT, are your funds all covered by FDIC insurance just because you walked into a secure-looking building with iron bars and guards?  Not necessarily--it depends on which of the bank's products you decide to use.

What is Insured?

You are probably familiar with the traditional types of bank accounts--checking, savings, trust, and certificates of deposit (CDs)--that are insured by the FDIC.  Banks also may offer what is called a money market deposit account, which earns interest at a rate set by the bank and usually limits the customer to a certain number of transactions within a stated time period. Except for certain trust accounts (where the assets of the account consist of securities rather than deposits), all of these types of accounts generally are insured by the FDIC up to the legal limit of $100,000 and sometimes even more for special kinds of accounts.

What is Not Insured?

Mutual FundsInvestors sometimes favor mutual funds over other investments, perhaps because they hold promise of a higher rate of return than say, CDs. And with a mutual fund, such as a stock fund, your risk--the risk of a company going bankrupt, resulting in the loss of investors' funds--is more spread out because you own a piece of a lot of companies instead of a portion of a single enterprise.  A mutual fund manager may invest the fund's money in either a variety of industries or several companies in the same industry.

Or your funds may be invested in a money market mutual fund, which may invest in short-term CDs or securities such as Treasury bills and government or corporate bonds.  Do not confuse a money market mutual fund with an FDIC-insured money market deposit account (described earlier), which earns interest in an amount determined by, and paid by, the financial institution where your funds are deposited.

You can--and should--obtain definitive information about any mutual fund before investing in it by reading a prospectus, which is available at the bank or brokerage where you plan to do business. The key point to remember when you contemplate purchasing mutualfunds, stocks, bonds or other investment products, whether at a bank or elsewhere, is: Funds so invested are NOT deposits, and therefore are NOT insured by the FDIC--or any other agency of the federal government.Securities you own, including mutual funds, that are held for your account by a broker, or a bank's brokerage subsidiary, are protected against physical loss by the Securities Investor Protection Corporation (SIPC, pronounced si-pick), a non-government entity funded by assessments paid by members.  

SIPC protects customer accounts held by its members up to $500,000, including up to $100,000 in cash, if a member brokerage or bank brokerage subsidiary fails.

A very important distinction between SIPC (and any other type of protection for investments) and FDIC insurance on deposit accounts is: NO type of protection for investments insures against loss in the value of an account (the value of your investments can go up--or DOWN--depending on the demand for them in the market), while federal deposit insurance protects the amount in your deposit account(s) up to the $100,000 limit.

Treasury Securities

Treasury securities include Treasury bills (T-bills), notes and bonds. T-bills are more commonly purchased through a financial institution.Customers who purchase T-bills at banks that later fail become concerned because they think their actual Treasury securities were kept at the failed bank.  In fact, in most cases banks purchase T-bills via book entry, meaning that there is an accounting entry maintained electronically on the records of the Treasury Department; no engraved certificates are issued. 

Treasury securities belong to the customer; the bank is merely acting as custodian.Customers who hold Treasury securities purchased through a bank that later fails can request a document from the acquiring bank (or from the FDIC if there is no acquirer) showing proof of ownership and redeem the security at the nearest Federal Reserve Bank.  Or, customers can wait for the security to reach its maturity date and receive a check from the acquiring institution, which may automatically become the new custodian of the failed bank's T-bill customer list (or from the FDIC acting as receiver for the failed bank when there is no acquirer).

Even though Treasury securities are not covered by federal deposit insurance, payments of interest and principal (including redemption proceeds) on those securities that are deposited to an investor's deposit account at an insured depository institution ARE covered by federal insurance on Treasury securities, they are backed by the full faith and credit of the United States Government--the strongest guarantee you can get.

Safe Deposit Boxes

The contents of a safe deposit box are NOT insured by the FDIC,or, generally, by the bank where the box is located.  (Make sure you read the contract you signed with the bank when you rented the safedeposit box in the event that some type of insurance is provided; some banks may make a very limited payment if the box or contents are damaged or destroyed, depending on the circumstances.)  If you are concerned about the safety, or replacement, of items you have put in a safe deposit box, you may wish to consider purchasing fire and theft insurance.  Separate insurance for these perils may be available; consult your insurance agent. 

Usually such insurance is part of a homeowner's or tenant's insurance policy for a residence and its contents.  Again, consult your insurance agent for more information.  If floods and earthquakes have been known to occur in your location, you may want to look into insurance against these natural disasters.In the event of a bank failure, in most cases an acquiring institution would take over the failed bank's offices, including locations with safe deposit boxes.  If the FDIC conducts a payoff because no acquirer can be found, boxholders would be sent instructions about removing the contents of their boxes.

Robberies And Other TheftsStolen funds may be covered by what's called a banker's blanket bond, which is a multi-purpose insurance policy a bank purchases to protect itself from fire, flood, earthquake, robbery, defalcation, embezzlement and other causes of disappearing funds.  The banker's blanket bond ensures that customers' funds are protected under those circumstances.In those rare instances where a bank employee may tamper with acustomer's account, the bank's blanket bond insurance may cover the loss and the funds could be returned to the customer. 

However, if a third party somehow gains access to your account and transacts business that you wouldn't approve of, you must contact the bank and your local law enforcement authorities, who have jurisdiction over this type of wrongdoing.(In summary:)


* Checking Accounts (including money market deposit accounts)? Savings Accounts (including passbook accounts)

* Certificates of Deposit? Retirement Accounts (consisting of cash on deposit at a bank or thrift) Not FDIC-Insured? Investments in mutual funds (stock, bond or money market mutual funds), whether purchased from a bank, brokerage or dealer

* Annuities (underwritten by insurance companies, but sold at some banks)

* Stocks, bonds, Treasury securities or other investment products,whether purchased through a bank or a broker/dealer  For more information about deposit insurance coverage, write to:

Office of Consumer Affairs FDIC550 Seventeenth Street, NWWashington, DC 20429

Or write to the appropriate FDIC Regional Office listed below:

Alabama, Florida, Georgia, North Carolina, South Carolina, Virginia, West Virginia:

  • FDIC, Deposit InsuranceOne Atlanta CenterSuite 15001201 W Peachtree St. NE, Atlanta, Georgia, 30309-3449
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