FDIC insurance is like a safety net for your money. It protects your cash if something were to happen to your bank.
Although Vanguard isn’t a bank, we do offer cash products that feature FDIC insurance, such as certificates of deposit (CDs) and the bank sweep within our Vanguard Cash Plus Account. So, if you’re looking for this layer of protection for your cash, we have options for you.
This article will review the benefits of FDIC insurance and explain:
- What FDIC insurance is and how it works.
- The account types and limits covered by FDIC insurance.
- How to check that your cash is FDIC-insured.
- Answers to FDIC insurance frequently asked questions (FAQs).
What is the FDIC and why was it created?
The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the United States government created by Congress in 1933, during the Great Depression, to help restore public confidence in the banking system and protect depositors’ money.
The FDIC insures bank deposits, so that if a bank fails, the FDIC ensures that depositors’ money—up to a certain limit—is safe. The FDIC also plays a key role in supervising and regulating banks to make sure they’re complying with laws and regulations. FDIC insurance is just one mechanism in place to make sure that cash is protected, and since its inception, no depositor has lost a single cent of insured money.
What is FDIC insurance?
FDIC insurance is a U.S. government-backed program that safeguards money in deposit accounts at banks.
Cash is meant to be a very low-risk asset, and FDIC insurance is one of the structures in place that helps assure this—at no cost to you. Its purpose is to keep the public confident in the banking system and make sure savings are protected in the event of a bank failure.
How does FDIC insurance work?
When a bank is a member of the FDIC, they pay the premiums for FDIC insurance. These premiums fund the Deposit Insurance Fund.
If the member bank or financial company fails, the FDIC will contact you and provide instructions on how to access your money. Typically, they’ll either pay you directly or transfer your account to another company that’s insured.
In addition to the insurance component, the FDIC routinely examines and oversees banks to ensure they’re financially sound and complying with regulations. This helps the FDIC to find and address potential issues before they lead to a bank failure.
FDIC insurance limit
The FDIC insurance limit is $250,000 per depositor, per insured bank, per ownership category. That means that money in different ownership categories, like a single account and joint account at the same FDIC-insured bank, are separately insured up to at least $250,000.
Since Vanguard Cash Plus Account’s sweep program uses multiple program banks, it offers FDIC coverage up to $1.25 million ($2.5 million for joint accounts), subject to applicable limits.1
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Which accounts are covered by FDIC insurance?
FDIC insurance covers deposit accounts, including the following Vanguard offerings:
- CDs.
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- Cash management accounts.
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In addition to what Vanguard offers, the FDIC can cover the following:
- Checking accounts.
- Savings accounts.
- Cashier’s checks.
- Money market deposit accounts.
What isn’t covered by FDIC insurance?
FDIC insurance doesn’t cover noncash investments, such as:
- Stocks.
- Bonds.
- Cryptocurrency.
- Mutual funds.
- Money market funds.
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- Life insurance.
- Safe deposit boxes.
Note that while money market deposit accounts are FDIC insured, money market funds aren’t covered. A money market deposit account pays interest on your deposit, while a money market fund earns returns from the underlying investments held in the fund.
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