FDIC Insurance Matters When You Open a Savings Account

September 20, 2018
1149 Views

Financial institutions offer a whole range of savings products that can be enticing with the returns that they promise. However, not every type of savings account will protect you from a bank failure. If a bank stops operating, and you are not protected by FDIC insurance, then there will be little recourse available to you.

A savings account is one of the most important financial assets that you can hold. As an investment, a savings account offers future security and a potential emergency fund for hard times. Of course, for your savings to be a true investment, they will need to be protected.

What is FDIC Insurance?

It’s natural to consider a bank or financial institution as a safe place to store your wealth. You assume that your money will be well managed and protected. In reality, only FDIC insured accounts can offer you complete protection in the case of a bank failure. We only need to look back to the last financial crisis to see what can happen in the worst-case scenario.

The Federal Deposit Insurance Corporation (FDIC) is a government backed insurance framework that protects deposits up to $250,000 in value. If you open a savings account that is FDIC protected, then any deposit or balance will be insured, up to the federal limit. Even if the bank goes out of business, you will still receive the complete balance that was in your insured savings account.

Most checking accounts, savings accounts, and certificate of deposit accounts are FDIC insured. There are also money market accounts that are commonly offered with FDIC insurance.

How Will You Know if an Account is Insured?

Banks and financial institutions are legally required to disclose information about savings accounts and investment products. If an account is not listed as being FDIC insured, then ask the bank or institution what kind of deposit insurance is offered. Some accounts may be FDIC insured but not advertised as such.

If you are investing in non-conventional savings, such as a mutual fund product, annuities, or even a health insurance savings product, then these will not be FDIC insured. The bank may offer another type of private insurance or guarantee.

Always ask for a full prospectus on any investment savings product before you put your money away. For savings up to $250,000, FDIC insured accounts are always the safest option.

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