FDIC stands for Federal Deposit Insurance Corporation. The FDIC is an agency of the US Government that is charged with protecting consumers and keeping the banking industry as safe as possible.
The FDIC does several things, but it is best known for insuring bank accounts (at FDIC insured institutions). If an insured bank goes belly-up, the FDIC steps in so that customers do not lose all of their money. The process is generally fast, and account holders may hardly realize that the FDIC was involved. In most cases, your accounts are transferred to a successor bank, and you continue on with that bank (or take your business elsewhere) if you like.
Note that there are limits and restrictions, and you should always verify that your money is insured if you’re concerned about a potential loss. In some cases, the FDIC will cover uninsured losses, but there is no guarantee that it will happen if your bank fails.
While the FDIC is a government agency, and there is basically a government guarantee behind the FDIC, bank losses are not paid for with taxpayer dollars. Instead, banks must pay premiums into an insurance fund in order to offer FDIC insured accounts.
An FDIC for Credit Unions?
Credit union customers also enjoy coverage similar to FDIC insurance. In the credit union world, the insurer is the National Credit Union Association (NCUA), which offers NCUSIF insurance.
For the most part, credit unions are similar to banks in terms of the products and services they provide. You can borrow money, write checks, and earn interest at either type of institution. The main difference is the ownership structure: credit unions are “owned” by account holders.
- Learn more: How Credit Unions Work