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What Does FDIC Insurance Mean?
This is all about educating its readers about their personal money matters and making you more aware of options so you can make more informed decisions. The last thing we want to do is make an assumption that all our readers truly understand what FDIC insurance means.
We hear that term tossed around a lot, but without grasping exactly how it helps you and your family, it may fall on deaf ears. Understanding the value of FDIC insurance will help you make more informed choices about which banking services you use.
FDIC Defined We can't explain FDIC insurance without first defining what FDIC itself means. It stands for Federal Deposit Insurance Corporation and it is an organization created by federal law after the Great Depression in the 1920s. The purpose of the FDIC is to provide insurance to bank customers in the event of a bank failure. This injects confidence into the banking system and encourages people to utilize banks as opposed to keeping cash under their mattress.
250,000 USD Coverage For Each Customer Banks pay into the FDIC insurance fund. In other words, part of the fees and profits the banks earn from its customers go toward this insurance pool. Whenever a bank fails in the United States, the government, through the FDIC, insures the deposits you have at the failed bank up to a limit.
Historically, that limit was $100,000 per customer but during the recent financial crisis, it was increased to $250,000 and remains at that level today.
FDIC Insurance For Prepaid Bank Card Services Using a non-traditional bank service like AccountNow or Green Dot may raise questions about security and safety of your hard earned money. AccountNow Prepaid Visa Card and Prepaid MasterCard Cards work similar to an online checking account. Your deposits with AccountNow are FDIC insured up to 250,000 USD which is clearly disclosed on their website. Similar services such as Green Dot and Rush Card do not mention FDIC insurance on their website.
How FDIC Insurance Protects You If you carry a wad of cash in your wallet and your wallet ends up lost or stolen, what protection do you have? None. Your cash is gone. One of the advantages of using a bank is FDIC Insurance. For example, if Bank of America fails today, all of their customers have their deposits protected up to 250,000 USD. You could go to bed Friday night, wake up Saturday morning to national news about Bank of America failing and still have access to your money Monday morning. Same goes for a prepaid bank card account like AccountNow which is operated by an FDIC insured bank.
Important Distinction To Understand FDIC insurance is on a per customer basis, not per account. For example, assume your Rich Uncle Joe has 250,000 USD in his savings account and another 5,000 USD in a checking account at Bank of America. If the bank fails, Uncle Joe has a total of 255,000 USD on deposit, but FDIC insurance only guarantees that he will get 250,000 USD from the bank failure. However, Uncle Joe gets a separate batch of 250,000 USD FDIC insurance for each bank he uses that is a member of FDIC.
Author Resource:-
Nathan Randall, editor, Daily Dollar Newsletter provides free daily advice on money matters plus coupons and discount codes. FYI...you can now access the Daily Dollar Newsletter via iTunes podcast, YouTube video, and on Facebook and Twitter too.
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