Are you just hearing about banking insurance for the first time? well, this is a very interesting article, most especially for those who really want to get more ideas about banking and insurance. it is advisable you study this blog carefully, for a better understanding.
But I know that it is not everybody that knows of this very form of insurance known as banking insurance. This type of insurance has been around for quite some time now, yet not everyone knows about it.
The purpose of this article is straightforward. In the course of this article, I will be exposing various aspects of banking insurance, how it works, and everything you need to know about it.
Are you tired of losing your money whenever a bank or financial institution with which you are depositing or saving your money fails? Of course, you should be tired. Nobody wants to save money for future use and at the end of the day lose the money, just like that. This is where the banking insurance comes in.
Banks as we all know are safe havens to store our money. Still, sometimes these safe places with which we all have so much trust fail. Experiences over the past years have made us all accept these facts. Hard facts but they are all true. And when these institutions fail, it, therefore, means that they can no longer meet up with their obligations to the persons who have stored or deposited their money and valuables with them or those persons or organizations that they have borrowed from.
Now where banking insurance does come in all of these. In these cases as stipulated above, with the help of banking insurance, your money is protected. The said bank must be federally insured in order for your money to be safe though. And for a bank to be federally insured, the bank must be backed by the federal deposit insurance corp.
For you to be able to get a complete and comprehensive understanding of banking insurance, you need to know what FDIC is as they are both wrapped up together in the same form of business. FDIC stands for federal deposit insurance corps and it was established in the year 1933. It was established in response to the time of the great depression. During this time a lot of banks and financial institutions were failing. It was therefore established to reassure the public confidence in the banking system by insuring users’ or consumers’ deposits. Since the inception of this great insurance scheme not a cent of insured funds has been lost.
How Does FDIC Works
You already know this already, but let me throw more light on it. Banks are not insured by default just in case you are wondering. It comes at a cost to be insured by the FDIC and the banks are responsible for covering the cost of this insurance. As a consumer, you don’t pay any form of fee for this. The FDIC insures up to 250,000 USD per institution, depositor, and ownership category.
It covers deposit accounts such as savings, checking, and money market accounts, and lastly certificates of deposit. This form of insurance is only applicable in the event a bank fails. In the case where you invest in a bank and you eventually run at loss, you will not be covered by this insurance scheme. FDIC also does not cover the contents of a safe deposit box housed at a bank.
FDIC Bank Insurance Coverage Includes
Below are some of the FDIC Bank Insurance Coverage:
- Checking accounts
- Negotiable Order of withdrawal accounts
- Savings accounts
- Money market deposit accounts (MMDAs)
- Time deposits such as certificates of deposit (CDs)
- Cashier’s checks, money orders, and other official items issued by a bank
Those are some of the FDIC Bank Insurance Coverage you need to know about.
FDIC Bank Insurance Coverage Does Not Include
Here are some of the things FDIC Bank Insurance Coverage does not Include:
- Stock investments
- Bond investments
- Mutual funds
- Life insurance policies
- Municipal Securities
- Safe deposit boxes or their contents
- S Treasury bills, bonds, or notes
Above are some of the things FDIC Bank Insurance Coverage does not Include.
Limits of Bank Insurance Coverage
The limit of this insurance is 250,000 USD per depositor, institution, or ownership category. Now, what does it mean to be insured by up to USD 250,000 per user? To answer this question more accurately, consider this example. Let’s say you are running a single deposit account and you have a total of 250,000 USD dollars in your deposit account.
In the event that the bank fails, you will recover or regain your 250, 000 USD in full. But if you have up to 350,000 USD in total in your deposits with that bank, you will lose 100,000 USD. This is because FDIC will only cover up to 250,000 USD.
How to Maximize Your FDIC Coverage
If you study the example above, you will notice that it is possible to still lose money even with the insurance scheme of the FDIC in place. This is because the FDIC can only insure up to 250,000 USD per depositor. This means that if you have more than this amount deposited in a bank, you will lose any figure in the excess of the 250,000 USD insured.
But there is a way you can maximize this opportunity to get the best out of the FDIC coverage. If you have more than 250,000 USD you would love to deposit and still want to get insured, there is a way to go about it. One efficient way to maximize FDIC coverage is to spread your money across multiple institutions.
For example, let’s say you are single martially and you have 500,000 USD you want to deposit. What you have to do here is to share this money in two parts of 250,000 USD each and deposit them in separate institutions or banks each. If you do this, all of your money will be protected by the FDIC.
If you are married and you are running a joint account with your spouse under the ownership category of the account and you have up to 500,000 USD in your deposit with an institution, your money is safe. Since the money is on a joint ownership account, you and your spouse are covered for up to 250,000 USD each.
How to Get Your Money Back
How do you get your money back, in the event a bank backed up by the FDIC fails? The answer is easy. Here when such happens, the FDIC will try to sell out deposits and loans from the failed institution to a solvent one. If this is successful, the customer accounts are simply transferred.
On the other hand, if no sale is made, customers from failed institutions will receive cheques from the FDIC. This is within the range of a few days from the bank’s closing. Should in case the FDIC require further actions in order to redeem deposits, a consumer affected will be notified by mail.
Frequently Asked Questions
What type of Insurance is Required by the Bank?
Fiduciary Liability and Bonding. Cyber Liability Insurance / Data Breach. Trust Liability. Employee Benefits Liability.
Is Banking Another Type of Insurance?
Banks and insurance companies are both financial institutions, but they have different business models and face different risks. While both are subject to interest rate risk, banks have more of a Systemic linkage and are more susceptible to runs by depositors.
What is the Difference Between Finance and Banking and Insurance?
Banks provide services that include accepting deposits, giving loans, and securities underwriting and offering shares to the public. Finance companies provide a much larger range of services than banking institutions, which include asset management services, insurance services, financial research facilities, etc.
Whom are Banks Insured by?
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.
What is Meant by Banking?
Banking is the business of protecting money for others. Banks lend this money generating interest that creates profits for the bank and its customers. A bank is a financial institution licensed to accept deposits and make loans. But they may also perform other financial services.
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