FDIC insurance is a type of deposit insurance that helps protect FDIC-insured banks from failing. In order to protect these banks, the government requires all FDIC-insured banks to maintain certain levels of capital. That capital comes in the form of FDIC insurance. Many people are unfamiliar with this type of insurance, so let’s take a closer look. What is FDIC Insurance? – An Explanation
What is FDIC Insurance?
Image Source: Freepik
FDIC insurance is a type of deposit insurance that helps protect FDIC-insured banks from failing. In order to protect these banks, the government requires all FDIC-insured banks to maintain certain levels of capital. That capital comes in the form of FDIC insurance.
FDIC insurance protects bank depositors in two ways. First, it reimburses consumers who lose money in an FDIC-insured bank if that bank fails. Second, it allows consumers to get their money out of a failed bank without fear of loss.
How FDIC Insurance Works
To understand how FDIC insurance works, let’s start with a hypothetical situation. Imaginek that you open a savings account at a local bank. You deposit $1,000 and are given an account number and some printed papers that appear to be your contract. (If you’re interested in how this contract is written, read this article on how bank deposits are made.)
Now, let’s say that the bank is having some problems and might go out of business. If so, it will try to return the $1,000 you deposited in the hope that you’ll give it back the $1,000. But, if the bank goes out of business, you will keep both the $1,000 you deposited and the contract that gives the bank the right to take it back. The contract, however, is meaningless if the bank fails.
2 Comments