Banks have traditionally offered consumers deposit products, such as checking, savings and money market deposit accounts, and certificates of deposit (CD's) for which each depositor is insured by the FDIC up to at least $250,000.
Increasingly, banks, along with investment firms, are also offering consumers a broad array of investment products that are not deposits, such as mutual funds, annuities, life insurance policies, stocks and bonds. Unlike the traditional checking or savings account, however, these nondeposit investment products are not insured by the FDIC.
This article will help you identify which bank products are protected by FDIC insurance, and those nondeposit investment products that are not FDIC-insured.
What Is Insured?
FDIC insurance covers all types of deposits received at an insured bank, including:
- checking accounts,
- negotiable order of withdrawal (NOW) accounts,
- savings accounts,
- money market deposit accounts (MMDAs),
- certificates of deposit (CD) and other time deposits, and
- official items issued by a bank (such as cashier's checks or money orders).
FDIC insurance covers depositors' accounts at each insured bank, dollar-for-dollar, including principal and any accrued interest through the date of the insured bank's closing, up to the insurance limit. The standard insurance amount is $250,000 per person, per bank, per ownership category.
What Is Not Insured?
FDIC does not insure nondeposit investment products, even if they were purchased from at insured bank, including:
- mutual funds
- government securities
- municipal securities
- U.S. Treasury securities
These products may be offered to you in the financial institution's lobby, through the mail, over the phone or through the Internet. Most often, the people selling these products are not financial institution employees, but employees of third-party securities broker/dealers or insurance companies.
When you meet or talk with a sales representative about nondeposit investment products, you should be informed that:
- "This product is not insured by the Federal Deposit Insurance Corporation."
- "This product is not a deposit or other obligation of, or guaranteed by, the bank."
- "This product is subject to investment risks, including possible loss of the principle amount invested."
Sales representatives must make these disclosures to you orally and/ or in writing whenever they make a presentation, provide investment advice concerning a nondeposit investment product, or open an investment account for you.
Any advertisements and other promotional materials you receive also must disclose that the product is not a deposit, is not insured by FDIC, and is subject to investment risks.
Look for the logo disclosure that says "Not FDIC-Insured" in visual media such as television broadcasts, ATM screens, billboards, signs, posters, and in written advertisement and promotional materials such as brochures.
It's important to remember that there are generally higher risks associated with nondeposit investment products than with the traditional deposit products, such as savings and interest bearing checking accounts. Nondeposit investment products are not FDIC-insured so you could lose some of the money you invested or not gain as much profit as you expected.
The value of your nondeposit investments can go up or down depending on the demand for them in the market. The Securities Investors Protection Corporation (SIPC), a non-government entity, replaces missing stocks and other securities in customer accounts held by its members up to $500,000, including up to $250,000 in cash, if a member brokerage or bank brokerage subsidiary fails.
When shopping for a nondeposit investment product, look for one that suits your investment goals and objectives, your financial and tax status, the amount of risk you're willing to take, and the time horizon you've set for your investment portfolio.
Don't hesitate to provide the salesperson with this information. He or she needs to know about your financial objectives before recommending a product that suits you. Most importantly:
- Never invest in a product that you don't understand.
- Be sure you have enough information before making an investment. Ask questions until you are satisfied.
- Understand the risks involved in your investment. Investments always entail some degree of risk.
- Know who is investing your money—does the salesperson work for the bank or a third-party broker/dealer?
- Select a sales representative who understands your financial objectives by interviewing two or three to compare experience, education, and professional background.
- Find out more about a sales representative or broker/dealer by calling The Financial Industry Regulatory Authority (www.finra.org)(formerly the National Association of Securities Dealers) at(800) 289-9999
Other situations not insured by the FDIC:
Safe Deposit Boxes - The contents of a safe deposit box are not insured by the FDIC. (Make sure you read the contract you signed with the bank when you rented the safe deposit box in the event that some other type of insurance is provided; some banks may make a very limited payment if the box or contents are damaged or destroyed, depending on the circumstances.) If you are concerned about the safety, or replacement, of items you have put in a safe deposit box, you may wish to consider purchasing fire and theft insurance. Usually such insurance is part of a homeowner's or tenant's insurance policy for a residence and its contents. Again, consult your insurance agent for more information.
In the event of a bank failure, in most cases an acquiring institution would take over the failed bank's offices, including locations with safe deposit boxes. If no acquirer can be found the FDIC would send boxholders instructions for removing the contents of their boxes.
Robberies and Other Thefts - Stolen funds may be covered by what's called a banker's blanket bond, which is a multi-purpose insurance policy a bank purchases to protect itself from fire, flood, earthquake, robbery, defalcation, embezzlement and other causes of disappearing funds. In any event, an occurrence such as a fire or bank robbery may result in a loss to the bank but should not result in a loss to the bank's customers.
Unauthorized access to your funds may be covered by the Electronic Funds Transfer Act and other consumer protections. If a third party somehow gains access to your account and transacts business you did not authorize, you must contact the bank as soon as you notice the loss to learn about their procedures for protecting your rights.