There are very few free things in the world. Usually those that are end up being too good to be true. There’s usually a catch or some kind of detail that makes the deal a lot less attractive than you’d initially think. If I think about insurance, that is even more the case.
One type of insurance that is offered for free is insurance on bank deposits. In both Canada and the US, governments end up backing deposits. Why? It’s partially in their own interest. Economies work much better with an efficient banking system that users can trust and for that reason, the FDIC has been insuring deposits for American depositors since 1934.
How Does FDIC Insurance Work?
Any resident that saves money through:
-money market deposits
-certificates of deposit
Will have those funds insured by the FDIC up to $250,000 per bank. So yes, if you had $400,000 in assets, you would need to split those funds into 2 different FDIC insured banks in order to be entirely protected. Most investments (stocks, bonds, mutual funds, annuities and other insurance products are NOT covered).
The Canadian equivalent has been insuring deposits since 1967 and work in a similar way except for the fact that only up to $100,000.
When You Are Unsure
It’s easy enough to ask your bank if it is FDIC insured or not as well as ask about any account type or holding that you are considering.
It’s Worth Asking About It
There are more than enough FDIC insured banks to justify making sure that your investments are insured, especially since it comes free of cost. It’s true that it’s very unlikely (especially in Canada) that it would ever be necessary but just imagine how grateful you will be if it ends up making a difference.