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What is FDIC?:

FDIC stands for the Federal Deposit Insurance Corporation. The FDIC was created back in 1933 in response to the many bank failures during the Great Depression. Prior to FDIC, if you had deposits at a bank, and the bank failed, you lost your money. Now, if you have deposits in an FDIC insured account, this government agency guarantees those deposits.

What Was The Great Depression of 1929?:

The Great Depression of 1929 was a worldwide depression that lasted for 10 years. Its kickoff in the U.S. economy was “Black Thursday”, October 24, 1929, when 12.9 million shares of stock were sold in one day, triple the normal amount. Share prices fell 15 - 20%, causing a stock market crash.

What, and How Much is Insured?:

While the FDIC does insure deposits, there are limits.  Typically, the insured accounts include checking, savings, money market, and certificate of deposit accounts.

What the FDIC Does:

The FDIC insures savings, checking and other deposit accounts of up to $250,000 per account ($500,000 per joint account). In total, the FDIC insures more than $3 trillion of deposits in U.S. banks.

The FDIC also examines and supervises about 5,250 banks, more than half of the total system. When a bank fails, the FDIC immediately steps in. It usually sells the bank to another one, and the customers are transferred to the purchasing bank. Most of the time, the transition is seamless from the customer's point of view.

How the FDIC Affects the Economy:

FDIC insurance prevents widespread bank panics by maintaining confidence in the banking system.

During the Great Depression, the Federal Reserve allowed liquidity to fall, which caused many banks to become bankrupt. As banks went out of business, depositors started to panic and withdraw all their deposits. This caused more banks to go out of business, creating a domino effect. Eventually, most people felt their money was safer under their mattress than in a bank. This took more money out of circulation, creating widespread deflation and further deepened the Depression.

By preventing bank panics, the FDIC helps prevent another Great Depression.

How the FDIC Affects You:

The FDIC insures your savings, checking and money market accounts as well as Certificates of Deposit, of up to $250,000 per account per bank. If you save more than $250,000, keep it in a separate bank so it is insured.

The FDIC also insures individual retirement accounts (IRAs) and Keoghs of up to $250,000. The FDIC's Electronic Deposit Insurance Estimator can help you determine if you have adequate deposit insurance for your accounts.

Also, use FDIC's Bank Find to make sure your bank is insured.The FDIC does not insure securities or mutual funds even if offered by a bank. (See Insured and Uninsured Investments to see what is and is not protected by FDIC insurance.)

What if I Have More Than $100,000 at the Bank?:

Even though the maximum amount insured is $250,000 per account per bank, it is possible for an individual to have even more money protected at a single institution. That is because the FDIC looks at how accounts are owned when determining the limit. Deposits maintained in different categories of legal ownership at the same bank can be separately insured. Therefore, it is possible to have deposits of more than $100,000 at one insured bank and still be fully insured.

What About Retirement Accounts?:

If you have assets in certain retirement accounts such as an IRA at an insured bank, those accounts may be covered up to $250,000. Keep in mind that this only includes retirement accounts that are bank deposits, such as a CD IRA. If you own mutual funds or other investments through a brokerage account at your bank, those assets are not included. If you are unsure as to whether or not your retirement funds are insured by FDIC, you should contact your bank for more information.

What Happens if My Bank Fails?:

Federal law requires that the FDIC makes insured funds available as soon as possible. In most cases, this occurs by the next day. Generally, the FDIC finds another bank that is willing to take over, or buy the rights to the failing bank. This would mean all existing customers immediately become customers of the new bank, and business continues as usual.---By Kimberly Amadeo, About.com