How Safe Is Money in a Bank Account or a CD?

Many accounts and products offered by banks are insured by the FDIC, but a few investment options don't carry FDIC guarantees.

How Safe Is Money in a Bank Account or a CD?
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Overview
You may enjoy the feeling of security you get from keeping your money in a bank. After all, that's what banks do---keep your money safe. But if the bank went out of business, would your hard-earned money suddenly be gone? If your bank is a member of the Federal Deposit Insurance Corp.---and most banks are---your deposits are protected by FDIC insurance, and you'd get your money back in the event of a bank failure.
The Facts
The FDIC was founded in 1933 in response to widespread bank failures during the Great Depression. FDIC insurance covers deposit accounts such as checking, savings, money market savings and certificates of deposits, as well as certain retirement accounts, but not investment accounts or insurance policies. Deposits are insured up to $250,000 until Jan. 1, 2014, when the limit is scheduled to return to its prior level of $100,000.
Function
In the event of a bank failure, the FDIC will reimburse account owners the full amount of deposits held in the bank, including principal amounts and interest, up to the $250,000 limit. Traditionally, depositors have received these funds within a few days of the bank's closing. Reimbursed funds are either placed into an account at another bank or issued in a check to the depositor. Uninsured funds may be reimbursed after the sale of the bank's assets but are not guaranteed.
Features
FDIC insurance is funded by premiums paid by its member banks, not by taxpayer money. The $250,000 limit applies to all accounts held by the same owner in one bank. Each of your accounts is not insured for the full amount; the insured amount is the combined total of all your accounts. Bank mergers occasionally put individuals over the FDIC limit, if they hold accounts in both banks.
Benefits
Because the FDIC considers several different ownership categories, it is possible to keep more than $250,000 in one bank and still be insured, if the accounts are set up correctly. Individual, joint and trust accounts are all separate ownership categories, as are IRAs. You could set up an account in your name, a joint account with your spouse, a trust for each of your children and an IRA all in the same bank. Each of these accounts would be insured for the full $250,000.
Warning
Not everything your bank offers is FDIC-insured. Securities such as stocks, bonds and mutual funds are not covered but are often covered by another institution called the Securities Investor Protection Corp. Any items in safe-deposit boxes are also not covered by the FDIC---you should insure these items privately through your insurance carrier. The FDIC also does not insure funds lost as a result of robbery, identity theft or events such as fire or natural disaster. Banks have separate insurance policies to cover these instances.
Resources
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FDIC