Bank insurance: The financial armour of protection for bank deposits in the US

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Bank insurance (bancassurance) is a vital system administered by the Federal Deposit Insurance Corporation (FDIC) to protect individuals’ savings in US financial institutions. Established in 1933 in response to the Great Depression, it has become a cornerstone of financial system stability.

How bancassurance works

• Scope of coverage: Deposit protection up to $250,000 per depositor per bank
• The regulating institution: Independent FDIC of the U.S. government
• Legal basis: Glass-Steagall Act (1933)
• Automatic activation: Applies as soon as you open an account at an insured bank

Insured Products

Bank failures and the intervention mechanism

When an insured bank is declared bankrupt:

1. As an insurer: Immediate repayment of deposits up to the insured limit
2. As a receiver: Liquidate the bank’s assets and repay the remaining debts
3. Interest coverage: Includes earnings accumulated up to the closing date

Understanding Coverage Limits (Case Study)

Insurance limits are one of the most misunderstood aspects of insurance:

• The principle: $250,000 per account category, not per person
• Account categories:
  • Individual accounts
  • Shared accounts
  • Pay on Death (POD) accounts
  • Eligible Retirement Accounts
• A practical example:
  One person can secure $750,000 via:
  • Individual account: $250,000
  • A joint account: $250,000
  • A retirement account: $250,000

Conclusion:
The bancassurance system remains the primary guarantor of public confidence in the U.S. banking system. Despite the complexities of the coverage structure, understanding the mechanics of asset allocation across different account categories enables depositors to maximise the protection of their savings beyond the default limit of $250,000.