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What is FDIC insurance and how does it work?

6 minute read   •   July 25, 2025
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Nicole Townsend headshot

Senior Manager, Investment Product Strategy, Vanguard

Nicole Townsend headshot

Nicole Townsend, CFA

Nicole Townsend leads Investment Product Strategy in Vanguard Personal Investor, where she conducts investment product research to inform decision-making and strategic action on Personal Investor's product portfolio. In her role, Nicole advocates for the needs and preferences of Vanguard clients as part of the enterprise investment product research process focused on Vanguard's mutual fund and ETF offerings. Prior roles Nicole has held include strategy engagement manager for Vanguard Wealth Management, fixed income specialist in the Portfolio Review Department, as well as a variety of roles held within the Finance division.

Nicole earned a B.A. and a B.S. from the University of Delaware and holds the FINRA Series 7 and 63 licenses. She's a Chartered Financial Analyst® (CFA®) charterholder and a member of the CFA Society of Philadelphia. 

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

Which accounts are covered by FDIC insurance?

FDIC insurance covers deposit accounts, including the following Vanguard offerings:

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.
  • 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.

FDIC versus SIPC: What's the difference?

While the FDIC and Securities Investor Protection Corporation (SIPC) both offer protection for your money, they insure different types of accounts.

The FDIC insures deposits in banks and savings associations, and SIPC covers cash, stocks, bonds, and other securities held in brokerage accounts, up to applicable limits.

SIPC offers up to $500,000 in coverage per customer, with a limit of $250,000 for cash. It's important to note that SIPC only covers losses due to the failure of the brokerage firm, not investment losses.

What if you exceed FDIC insurance limits?

If the amount in your bank account exceeds FDIC insurance limits, the excess is considered uninsured. If the bank fails, the FDIC will only reimburse you up to the insured limit for each ownership category.

Any funds above the limit are at risk of being lost in the event of a bank failure. To prevent this from happening, consider spreading your money across different ownership categories and account types, so your cash deposits are protected.

Vanguard Cash Plus Account can help mitigate this risk through its sweep program, which spreads money across a network of program banks to offer FDIC coverage of up to $1.25 million ($2.5 million for joint accounts).1

What are the types of FDIC ownership categories?

FDIC insurance covers deposit accounts based on ownership categories. Each one has its own coverage limit, so you can keep money in accounts with different categories to maximize your coverage.

All ownership categories can be found on fdic.gov. The following chart shows some common categories and descriptions:

  Account type Description

Single account

 Owned by 1 person.

Joint account

 

 Owned by 2 or more people, and each person has equal rights to withdraw money.
Business account

Owned by a business entity, such as a corporation or partnership.

Government account

Owned by a government or unit of government.

Retirement account

Owned by an individual and intended for retirement savings.

Single account

Owned by 1 person.

Joint account

Owned by 2 or more people, and each person has equal rights to withdraw money.

Business account

Owned by a business entity, such as a corporation or partnership.

Government account

Owned by a government or unit of government.

Retirement account

Owned by an individual and intended for retirement savings.

Examples of FDIC coverage

The following examples can help you see how FDIC coverage can apply to different scenarios, including excess deposits.

  Accounts FDIC coverage

An individual has the following accounts:

  • An individual savings account at Bank A with $200,000.
  • An individual checking account at Bank B with $150,000.

Total amount across accounts: $350,000

In this example, each account is covered separately up to $250,000, so both accounts are fully covered.

Total amount of coverage: $350,000

An individual has the following accounts:

  • An individual savings account at Bank A with $400,000.
  • An individual checking account at Bank B with $200,000.

Total amount across accounts: $600,000

In this example, the individual is covered up to $250,000 for the individual savings account at Bank A.

The individual checking account at Bank B is covered for $200,000.

There's an excess amount of $150,000 in the individual bank account at Bank A that's not covered. To protect the excess amount, this individual could consider moving it to another bank or the Vanguard Cash Plus Account sweep program to ensure it's FDIC-insured.1

Total amount of coverage: $450,000

An individual has the following accounts:

  • An individual savings account at Bank A with $200,000.
  • An individual checking account at Bank B with $150,000.

Total amount across accounts: $350,000

In this example, each account is covered separately up to $250,000, so both accounts are fully covered.

Total amount of coverage: $350,000

An individual has the following accounts:

  • An individual savings account at Bank A with $400,000.
  • An individual checking account at Bank B with $200,000.

Total amount across accounts: $600,000

In this example, the individual is covered up to $250,000 for the individual savings account at Bank A.

The individual checking account at Bank B is covered for $200,000.

There's an excess amount of $150,000 in the individual bank account at Bank A that's not covered. To protect the excess amount, this individual could consider moving it to another bank or the Vanguard Cash Plus Account sweep program to ensure it's FDIC-insured.1

Total amount of coverage: $450,000

How to check if a bank is FDIC-insured

If you visit a physical branch of an FDIC member bank, look for an FDIC sign, which they're required to display. If you're on the bank's website, you should see the FDIC logo, usually on the homepage or in the footer.

If you have any doubt about a bank's status, you can also use the FDIC's BankFind tool, which allows you to search for all FDIC-insured banks dating back to 1934.

FAQs about FDIC insurance

Yes. When you open an account at a bank or savings institution that's a member of the FDIC, then your deposits will be automatically insured up to the maximum coverage limit. You don't need to apply separately for FDIC insurance.

Whether you need deposit insurance depends on the institution where you're keeping your money and the account type. If you're keeping cash in an account, knowing that the bank is an FDIC member can give you security and peace of mind that your money is protected, up to the applicable limit, in the event of a bank failure. Many noninsured accounts have different protection mechanisms in place. If you have any questions about whether your account is insured, check the website for your bank or financial institution or contact them directly.

Yes. Money market accounts held at banks are cash equivalents because they offer liquidity, low risk, and stability. They aim to provide a return while maintaining liquidity and minimizing the risk of fluctuating market values.

As noted above, money market accounts are different from money market funds. Money market funds are investment products that aren't FDIC-insured. These accounts, typically offered through a brokerage or retirement account, are low risk but earn yields on their underlying investments, which can change over time with market conditions.

Why FDIC insurance matters for your financial security

The U.S. government-backed FDIC insurance program helps bolster trust between banks and their customers, protecting cash in the event of a bank failure. It creates a sense of safety and stability for all savers, especially those who are more conservative with their money and have a low risk tolerance.

By paying close attention to the types of accounts you use to save and their insured amounts, you can enjoy an extra layer of protection for your cash.

If you're looking for convenient cash management with FDIC insurance, consider opening a Vanguard Cash Plus Account. You can open an account at no cost2 and access a competitive yield for your savings.3

Open a Cash Plus Account today

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1Bank Sweep program balances are held at one or more Program Banks, earn a variable rate of interest, and are not securities covered by SIPC. They are not cash balances held by Vanguard Brokerage Services® (VBS®), a division of Vanguard Marketing Corporation (VMC); VMC is not a bank. Bank Sweep deposits are covered by FDIC insurance up to $250,000 per insurable category of ownership at each Program Bank when aggregated with all other deposits held by you at such bank and in the same insurable category. VBS will aggregate and allocate Bank Sweep deposits to Program Banks across Vanguard Cash Plus and Vanguard Cash Deposit with identically registered accounts to offer maximum FDIC coverage up to $1.25 million ($2.5 million for joint accounts) when at least 5 Program Banks are utilized. VBS will aggregate and allocate Bank Sweep deposits for trust accounts at the account level and not at the beneficiary level. FDIC coverage may be decreased based on Program Bank limits and whether you've opted out of any Program Banks and is subject to applicable FDIC coverage limits. You are solely responsible for monitoring the aggregate amount that you have on deposit at each Program Bank in connection with FDIC limits. See the Vanguard Bank Sweep Products Terms of Use (PDF) and list of participating Program Banks (PDF) for more information. For more information about FDIC insurance coverage, please visit fdic.gov.

2A low annual account service fee of $25 is waived when you elect e-delivery of documents. You can sign up for e-delivery during and after the process of opening an account. There may be low fees for certain types of transactions. See the Vanguard Brokerage Services commission and fee schedules for details and exclusions.

3The Cash Plus bank sweep program annual percentage yield (APY) will vary and may change at any time.

 

For more information about Vanguard funds, visit vanguard.com to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information are contained in the prospectus; read and consider it carefully before investing.

Bank savings accounts offer different services and features than a Vanguard Cash Plus Account. For example, savings accounts often offer features like overdraft protection, ATM access, bill pay services, and other conveniences that Cash Plus Accounts do not offer. Cash Plus Accounts allow you to hold certain securities that bank savings accounts cannot hold. In addition, Cash Plus Accounts are subject to fraud prevention restrictions such as holding periods and transaction limits, which may not apply to a bank savings account. There may be other differences between these products that you may want to consider before choosing which option is best for you.

There may be other material differences between products that must be considered prior to investing.

All investing is subject to risk, including the possible loss of the money you invest.

The Vanguard Cash Plus Account is a brokerage account offered by Vanguard Brokerage Services, a division of Vanguard Marketing Corporation, member FINRA and SIPC. Under the Sweep Program, Eligible Balances swept to Program Banks are not securities: they are not covered by SIPC, but are eligible for FDIC insurance, subject to applicable limits. Money market funds held in the account are not guaranteed or insured by the FDIC, but are securities eligible for SIPC coverage. See the Vanguard Bank Sweep Products Terms of Use (PDF) and Program Bank list (PDF) for more information.

VMC is a member of SIPC, which protects securities customers of its members up to $500,000 (including $250,000 for claims for cash). Explanatory brochure available upon request or at www.sipc.org.