What is FDIC insurance and is your savings protected?

With news of failed banks coming more frequently during tough economic years, you may be wondering how safe your money is. Just as you have insurance to protect your home, your car and your health, virtually all banks insure their depositors' accounts through the Federal Deposit Insurance Corporation (FDIC).

And, just as you pay insurance premiums to safeguard your home and your car, your bank pays premiums to the FDIC to protect your money.

Is my savings account covered?

You probably know the interest rate on your savings account, but it's also critical to know that your savings is covered by FDIC. To find out, answer two questions:

1. Is your bank FDIC insured? You can find this information on your bank's website (look for the FDIC logo somewhere on the home page), or use the FDIC Bank Find.
2. Is your account eligible for coverage? Banks retain FDIC coverage for certain types of eligible accounts, including savings accounts, checking accounts, money market accounts, certificates of deposit, and certain retirement accounts such as traditional and Roth IRAs.

FDIC insurance has limitations, however, and many types of accounts are not covered, even if the institution who sold you these products is a member FDIC. Investments in mutual funds, individual stocks and bonds, annuities or life insurance policies, for example, are not FDIC insured.

Is there a limit to the amount covered?

Yes, with a "but." After the 2008 financial crisis, FDIC coverage was expanded to increase coverage limits. Here are two common account types:

• Single accounts (owned by one person) are covered up to $250,000.
• Joint accounts (held by two or more people) are covered up to $250,000 per person.

It gets a little tricky when you have multiple accounts at the same bank. If the accounts are in different categories (single plus joint, or checking account plus IRA), your coverage is increased. You can use EDIE, the FDIC's Electronic Deposit Insurance Estimator, to find your coverage.

Now for the "but." The FDIC will expand coverage temporarily in certain cases, as it did in response to 2010's Dodd-Frank Wall Street Reform and Consumer Protection Act. As of Dec. 31, 2010, noninterest-bearing accounts, including checking accounts that don't accrue interest, have unlimited coverage, as described on the FDIC website. This change is due to expire Dec. 31, 2012.

What happens if my bank fails?

If your bank had FDIC coverage, the most you'll likely face is a tense weekend and time updating your automated payments. The FDIC does not notify account holders if a bank has failed; by the time you hear about it, your money may be accessible somewhere else. On its website, the FDIC indicates that efforts are made "as soon as possible" to return money to depositors; the general guideline is two business days.

The FDIC usually awards the failed bank's business to another bank, which takes over account information. Your money essentially is moved to another bank; you can opt to keep your account there or find a new bank of your choice.

More rarely, if an alternative bank isn't found, the FDIC may pay account holders directly. Created in 1933 after numerous bank failures during the Great Depression, the FDIC asserts that no depositor has ever lost insured funds because of a failed bank.

How do I find an FDIC-insured bank?

Virtually all of the nation's 8,000-plus banks have FDIC coverage. Credit unions are insured through a similar agency, the National Credit Union Administration (NCUA).

Deposits made at online banks are held at a brick-and-mortar location which is FDIC-insured. An online bank should disclose where its assets are actually held. Use the FDIC Bank Find tool to locate one that meets your needs. Learn what to consider when choosing the right bank account and how to switch the right way.

With that peace of mind, you can go back to looking for the best possible interest rate!

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