The Federal Deposit Insurance Corporation (FDIC) has been set up under the Glass-Steagall Act of 1933. It provides deposit insurance that guarantees financial assets with banks, such as demand deposit accounts, checking accounts, savings accounts and certificates of deposit etc. up to the first $ 1, 00,000 per depositor in each bank, which are not branches of the same bank. FDIC may also provide insurance coverage to revocable and irrevocable trusts. Large scale bank failures in the wake of the Great Depression of the 1930s caused the congress to create such institution for the protection of the relatively small depositor.
Deposit accounts of different banks are insured separately. All branches of a particular bank are taken to be a single bank for this purpose. An internet bank that is part and parcel of a brick and mortar bank is not considered to be a different bank, even if the name differs.
The Federal Deposit Insurance Reform Act of 2005 enhanced the amount of insurance cover for Individual Retirement Accounts to $ 2, 50,000.
The FDIC maintains Deposit Insurance Fund by pooling deposit insurance premium received from different depository institutions. The amount of such insurance premium to which each institution is assessed depends on the balance of insured deposit as well as the magnitude of risk the concerned institution poses to the Deposit Insurance Fund.
In order to be eligible to deposit insurance benefit, member banks are obliged to follow certain liquidity and reserve norms, prescribed by FDIC.
Mutual funds, bonds, stocks and money market funds are non FDIC insured financial assets since the Securities Investor Protection Corporation, chartered by the congress, provides protection against loss of such securities in the event of broker failure or bankruptcy. Investments backed by the US Government like US treasury securities also do not need any insurance cover from FDIC. Insurance and annuity products too do not enjoy FDIC coverage.
