A Closer Look at the FDIC

When you hear “FDIC,” chances are good you know it has something to do with protecting money held in banks and other financial institutions. Most people don’t spend a lot of time thinking about what the FDIC is or does. But knowing more about this agency can help you make more informed deposit decisions for your organization’s funds. 

At Ampersand, we DO think about the FDIC often, because protecting your deposits with FDIC insurance through our bank network is our top priority. We put together this explainer post to give you a closer look at what the FDIC is, how it can protect your funds, and what its limitations are.

What is the FDIC?

The FDIC — Federal Deposit Insurance Corporation — is an independent government agency created by Congress in 1933. In the 1920s and ‘30s, there were several significant bank runs that contributed to a bleak economic landscape. Bank runs are likely something you’ve read about in the wake of the Silicon Valley Bank collapse of 2023. A bank run occurs when people aren’t confident in the institution’s solvency, and everyone pulls their money out at once. That’s a big problem since banks rely on deposited funds to loan money out. If everyone’s taking out their cash, and deposits aren’t coming in to make up for those withdrawals, that can mean trouble for the bank and its depositors. Of course, this is a simplified explanation as many factors can lead to a bank experiencing declining safety and soundness.

Before the FDIC, people and businesses who had deposited money in a bank that failed were, frankly, out of luck. Their deposits — in many cases entire life savings — were simply gone. The FDIC was created to provide a safeguard against these kinds of losses in the form of federal deposit insurance. 

If you have funds in a deposit account at an FDIC-member institution and that institution fails, your funds will be protected. 

At least, everything up to $250k will be. The FDIC insures deposits up to $250,000 per tax ID, per institution. Anything over that amount in a single institution is known as an “unsecured deposit.” So, if you happen to have $500k in an account and the institution it’s deposited with fails, you’ll have lost half of your funds. Not optimal, but still better than the total losses people experienced prior to the existence of the FDIC. (We’ll come back to this point a little later.)

Beyond Deposit Insurance

The FDIC also functions as a regulator and supervisor of financial institutions. You might remember hearing a lot about banks undergoing so-called “stress tests” and other examinations in order to prove they are safe and stable. The FDIC is responsible for overseeing many of those tests and ensuring compliance with consumer protection laws.

Unfortunately, banks still can and do fail. When that happens, the FDIC is there to step in and work to restore funds — up to $250k per tax ID per institution — to depositors as quickly as possible. It’s important to note that this only applies to cash deposits. The FDIC doesn’t insure investment accounts like CDs or mutual funds.

What if You Have More Than $250k to Protect?

When individuals or organizations have more than $250k in cash deposits to secure they need a deposit management strategy. Right now, there are trillions of dollars in cash deposits sitting in U.S. banking institutions completely unsecured. That’s the kind of thing that keeps us up at night.

As treasury management experts, our job is to help clients protect and grow their cash deposits even when they exceed the $250k covered by the FDIC. We’ve built a strong network of trusted banks, credit unions, and financial institutions in which to place deposits, and we leverage powerful, proprietary software to manage and monitor those funds. It’s how we help clients safeguard more of their funds — even when they have millions to deposit. 

The protections the FDIC offers depositors are extremely important. So is having an understanding of how those protections work and knowing there are deposit management pros like Ampersand available to help you navigate your treasury management strategy.

Are your organization’s funds unsecured? Find out how Ampersand can help you. Contact Us for your FREE risk assessment now.