Deposit insurance protects depositors if a bank fails. The government, or an entity backed by the government, guarantees that depositors will get their money back up to a limit. In the United States, the Federal Deposit Insurance Corporation, or FDIC, provides this protection. It was created in 1933, during the Great Depression, after thousands of banks failed and depositors lost their savings.

The FDIC insures deposits up to $250,000 per depositor, per bank, per ownership category. That means a single person with a checking account and a savings account at the same bank is insured up to $250,000 total. A person with a joint account is insured up to $250,000 for their share. A person with accounts at two different banks is insured up to $250,000 at each. The ownership category rules are complex, and they matter for large depositors.

The FDIC is funded by premiums paid by banks, not by taxpayers. It has a line of credit with the Treasury for emergencies. In 2023, when Silicon Valley Bank and Signature Bank failed, the FDIC used a systemic risk exception to insure all deposits, including those above $250,000. That decision was controversial, but it prevented a broader panic.

Deposit insurance is not unlimited. It does not cover investment losses, safe deposit box contents, or fraudulent activity. It does not cover credit union deposits, which are covered by the National Credit Union Administration. Most countries have similar schemes, with different limits and rules. The principle is the same: protect small depositors, prevent runs, and maintain confidence in the banking system.