What Is It and How Does It Work?

When you open a deposit account, such as a savings or checking account, you may see a notice stating the account is FDIC-insured.

The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the U.S. government that protects and reimburses your deposits up to the legal limit of $250,000 in the event your FDIC-insured bank fails.

Though it’s not very common, a bank can fail when it takes on too much risk, such as extending credit to borrowers that wind up defaulting. When this happens, the bank goes belly up, putting its customers’ assets in jeopardy. But thanks to FDIC insurance, you can receive reimbursement up to the maximum amount so your funds aren’t lost for good.

FDIC insurance covers checking, savings and other deposit accounts up to a standard amount of $250,000 — but there are a few caveats. Namely, the $250,000 limit is per account holder, not per account, like you might think.

But before we dive into insurance limits, here are the basics about FDIC insurance you need to know.

The FDIC covers many common deposit accounts, but it doesn’t insure investment accounts. Here are the following types of covered accounts:

• Checking accounts
• Savings accounts
• Negotiable order of withdrawal (NOW) 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

Meanwhile, these accounts are ineligible for FDIC coverage:

• Stock investments
• Bond investments
• Mutual funds
• Life insurance policies
• Annuities
• Municipal securities
• Safe deposit boxes or their contents

The standard coverage limit is $250,000 per account owner, per each of the ownership categories we include in the table below. 

That means you could technically qualify for more than $250,000 in coverage if you hold accounts in more than one ownership category, either as an individual or with a joint account holder.

For instance, a couple with a joint checking account that’s FDIC-insured can receive insurance for up to $500,000 for the same shared account ($250,000 per co-owner). And if each of you open your own individual checking account separately (under the category of “single account”) it would also have its own $250,000 coverage on top of your joint checking’s $500,000 coverage.

You can also see that trusts, benefit plans and other accounts factor in whether there are beneficiaries, participants or custodians connected to it.

Here’s a breakdown of the FDIC coverage broken up by type of account owner. 

Most checking accounts and savings accounts provided by major banks offer the standard FDIC insurance. Lots of these checking accounts also come with no monthly maintenance fees, which can save you up to $15 a month. 

As for savings, going with an FDIC-insured high-yield savings account can earn you more than 10 times the national interest rate.

Here are some of CNBC Select’s top-rated checking and savings accounts.