Fdic-Insured Savings And Loans: Are Your Finances Protected?

The Federal Savings and Loan Insurance Corporation (FSLIC) was a US government institution that provided deposit insurance to savings and loan institutions until its dissolution in the late 1980s. Its responsibilities were then transferred to the Federal Deposit Insurance Corporation (FDIC) in 1989. The FSLIC was established in 1934 as a safety net for the savings and loan industry, which had essentially collapsed during the Great Depression. The FSLIC backed up savings and loan accounts so that if an institution went under, depositors' funds would be protected. The FDIC now insures deposits in commercial banks and individual savings and loan accounts.

The Federal Savings and Loan Insurance Corporation (FSLIC)

All federal savings and loan associations were mandated to apply for insurance through the FSLIC. Other building and loan associations whose capital was not impaired were also allowed to apply. The FSLIC provided deposit insurance coverage of up to $100,000 per account. This meant that if a savings and loan institution failed, the FSLIC would ensure that depositors' funds were still safe.

However, the FSLIC itself faced significant challenges in the 1980s, with a large number of FSLIC-insured institutions experiencing losses due to risky activities, high costs, and insufficient management. By 1989, the FSLIC was in dire financial straits, requiring billions of dollars of taxpayer money to remain operational. Ultimately, it was abolished by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), and its responsibilities were transferred to the Resolution Trust Corporation (RTC), which later merged with the Federal Deposit Insurance Corporation (FDIC). The FDIC, also created in response to the Great Depression, had been insuring deposits in commercial banks, and its role expanded to include individual savings and loan accounts.

FSLIC's dissolution and the FDIC

The Federal Savings and Loan Insurance Corporation (FSLIC) was a US government institution that provided deposit insurance to savings and loan institutions. It was established in 1934 as part of the National Housing Act, in the wake of the Great Depression, to serve as a safety net for the savings and loan industry. FSLIC's role was to reassure depositors that their savings were safe, even if the institution failed.

However, during the savings and loan crisis of the 1980s, FSLIC became insolvent and had to be recapitalized with taxpayer funds. Despite this, FSLIC went bankrupt and was dissolved in 1989. The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) abolished FSLIC, and its responsibilities were transferred to the Federal Deposit Insurance Corporation (FDIC).

The FDIC, created in response to the Great Depression, already insured deposits in commercial banks. Its role expanded to include individual savings and loan accounts, with a maximum coverage of $250,000 per depositor. The FDIC states that this coverage can be exceeded if an account has multiple owners or falls into different types. The FDIC's insurance is backed by the full faith and credit of the US government, and no depositor has ever lost FDIC-insured funds.

The FSLIC Resolution Fund (FRF) was created to assume FSLIC's assets and liabilities, and as of 2020, the FDIC continued to administer the FRF. The FDIC faced its biggest challenge during the 2007-2008 financial crisis, during which 528 member institutions failed.

FDIC-insured banks

The Federal Deposit Insurance Corporation (FDIC) provides deposit insurance to protect your money in the event of a bank failure. Your deposits are automatically insured up to <$250,000 per depositor, per FDIC-insured bank, per ownership category. This includes traditional deposit accounts, such as certificates of deposit (CDs), at large and small banks across the country. Coverage is automatic when you open one of these accounts at an FDIC-insured bank or financial institution.

To determine if a bank is FDIC-insured, you can ask a bank representative, look for the FDIC sign at your bank, or use the FDIC's BankFind tool. This tool allows you to access detailed information about all FDIC-insured institutions, including branch locations, the bank's official website, and its current operating status. You can also use the FDIC's Electronic Deposit Insurance Estimator (EDIE) to calculate your specific deposit insurance coverage and determine how much of your bank deposits are covered.

It is important to note that not all financial products at a bank are covered by the FDIC. Banks offer some financial products and services that are not deposits, and the FDIC does not insure them. Additionally, in some cases, the FDIC may need additional time to determine the amount of deposit insurance coverage, especially for deposits that exceed $250,000 and are linked to trust documents or deposits established by a third-party broker.

In the unlikely event of a bank failure, the FDIC responds in two main ways. First, as the insurer of the bank's deposits, the FDIC pays insurance to depositors up to the insurance limit, usually within a few days after a bank closing. Second, as the receiver of the failed bank, the FDIC assumes the task of selling or collecting the assets of the failed bank and settling its debts, including claims for deposits in excess of the insured limit.

Deposit insurance coverage

Deposit insurance is calculated dollar-for-dollar, including the principal amount and any interest accrued or due to the depositor up to the date of default. The standard insurance amount is $250,000 per depositor, per FDIC-insured bank, and per ownership category. Ownership categories refer to the manner in which you hold your funds at the bank, including single accounts, joint accounts, trust accounts, retirement accounts, business accounts, and government accounts. For example, all single accounts owned by the same person at the same bank are added together and insured up to $250,000. Each co-owner's share of a joint account is also insured up to $250,000.

It is important to note that not all financial products at a bank are covered by FDIC insurance. Investment products such as stocks, bonds, mutual funds, crypto assets, life insurance policies, safe deposit boxes, and their contents are not insured by the FDIC.

To determine if your bank is FDIC-insured, you can ask a bank representative, look for the FDIC sign at your bank, or use the FDIC's BankFind tool. You can also use the FDIC's Electronic Deposit Insurance Estimator (EDIE) to calculate your specific deposit insurance coverage.

FDIC ownership categories

The Federal Deposit Insurance Corporation (FDIC) provides separate insurance coverage for depositors' funds held in different categories of legal ownership, or "ownership categories". The type of account—whether checking, savings, or certificate of deposit (CD)—has no bearing on the amount of insurance coverage. The FDIC insurance limit is $250,000 per depositor, per insured bank, for each account ownership category.

• Single accounts: A deposit owned by one person with no beneficiaries. This includes an account held in one person's name only, an account established for one person by an agent, nominee, guardian, custodian, or conservator, an account held in the name of a business that is a sole proprietorship, and an account established for or representing a deceased person's funds.
• Certain retirement accounts: Retirement accounts are insured under this ownership category if the account qualifies as a Section 457 deferred compensation plan account, such as an eligible deferred compensation plan provided by state and local governments, or if the plan is self-directed, meaning that plan participants have the right to direct how the money is invested.
• Joint accounts: A deposit account owned by two or more people, without named beneficiaries.
• Trust accounts: Accounts with one or more owners that name beneficiaries are insured as trust deposits, assuming certain requirements are met. The FDIC uses the formula: Number of Owners x Number of Beneficiaries x $250,000 = Amount Insured (up to $1,250,000 per owner for all trust accounts).
• Employee benefit plan accounts: An account representing funds of a plan where investment decisions are made by a plan administrator, not by the participants.
• Business/Organization accounts: Deposits owned by corporations, partnerships, and unincorporated associations, including for-profit and not-for-profit organizations.
• Government accounts (public unit accounts): Accounts held by a government entity.

It is important to note that a depositor cannot increase their FDIC insurance coverage by opening additional deposit accounts in the same ownership category or by dividing funds in the same ownership category among different accounts. The FDIC combines all deposits in the same ownership category held by a depositor at different branches or offices of the same IDI (separately chartered insured depository institution) and insures the total up to the insurance limit for that ownership category.

Frequently asked questions