Types Of Banks & Federal Deposit Insurance Corporation (FDIC)

 

Basics

The best place to keep your money safe is in a bank.  Realize, I did not say make a lot of money, just safe.  Banks earn money by taking money from you and other depositors, and then lending the money to other people and businesses for a fee which is called interest.  Banks do differ slightly based on how they are organized and which regulatory agency monitors them, although most people are not aware of the differences.  Everyone should have, and most people need, a good relationship with a bank.  Which one is right for you will depend on your needs and location.  Banks offer a number of different kinds of services such as checking accounts (see Types Of Checking Accounts), savings accounts (see Types Of Savings Accounts), ATM cards (see ATM & Debit Cards ), and other ways to help you manage your money.  Most bank accounts are insured by the FDIC (Federal Deposit Insurance Corporation) (http://www.fdic.gov/index.html), so you don’t have to worry about losing your money unless you have over a $100,000 in any one account, but we will discuss that later.

 

 

How Banks Earn Money

Banks take in money from depositors, both individuals and businesses.  Sometimes they even pay a small interest (payment for the use of the money) to their depositors.  They then combine the money and lend it out to other people or companies which need to borrow money.  This could be for cars, houses, college, or a local business that would like to expand.  When the bank loans money, it in turn charges the loan customer interest (see Simple & Compound Interest & The Rule Of 72).  Trust me; this is at a far higher rate than the interest they pay you for holding on to your money!  Banks are in the business to make money too.  For example:  A bank might pay you 2% interest when you deposit your money into a savings account.  They will then make a loan to your parents to buy a car at 5% interest.  Banks also earn fees or commission for other types of services they provide.

 

 

Types Of Banks

There are actually five different types of banks in the U.S.  The primary difference is how they are organized, Federal or State, which agency is the Primary Regulator, and if the bank is a Thrift or not.

The term "Thrift" refers to savings and loan associations, but can also mean credit unions and mutual savings banks.  These banks originally received most of their funds from consumer saving accounts.  But with banking deregulation they now account for only one source of funds.  Almost all banks, as previously mentioned, carry FDIC insurance.

National Banks
  • Organized under federal law
  • Primary Regulator (Federal)– Office of the Comptroller of the Currency (OCC), part of the US Treasury Department http://www.occ.treas.gov
  • Banks required to be members of the Federal Reserve http://www.federalreserve.gov
  • Names often include the word “national” or end with “N.A”, which stands for National Association
Federal Savings Association
  • Organized under the Federal Home Owner’s Loan Act
  • Required to do substantial amount of business in mortgage lending
  • Is a Thrift Organization
  • Primary Federal Regulator–Treasury Department , The Office of Thrift Supervision (OTS) http://www.ots.treas.gov
  • Not a member of the Federal Reserve, but a member of a Federal Home Loan Banks system http://www.fhlbanks.com
  • Names often include the word “Savings” or end with “FSB”, which stands for Federal Savings Bank
State Member Banks
  • Organized under State laws, but chose to become a member of the Federal Reserve
  • Primary Regulator is the Federal Reserve
State Non Member Banks
  • Organized under State laws, but they are not members of the Federal Reserve.
  • Primary Federal Regulator–Federal Deposit Insurance Corporation (FDIC) http://www.fdic.gov
State Savings Association
  • Organized under State laws
  • Required to do a substantial amount of business in mortgage lending (similar to the Federal Saving Association banks)
  • Primary Federal Regulator – Federal Deposit Insurance Corporation (FDIC) http://www.fdic.gov

 

Credit Unions

Although you will not qualify for this at the moment, this is another financial institution that acts like a bank.  It’s called a Credit Union.  These are non-profit financial institutions owned and operated by its members.  Groups forming credit unions may be employees of a company, a labor union or a religious group.  They offer a wide range of financial services including saving and lending.  You must be a member of the company or union in order to take advantage of their services.  These groups may pay higher rates on deposits and charge lower rates on loans.  Federally chartered credit unions are regulated and insured by the National Credit Union Administration.  To locate one click on the following link:
http://www.creditunionsonline.com.

Federal Deposit Insurance Corporation Federal Deposit Insurance Corporation (FDIC)

The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the United States Government. The FDIC protects depositors (people like you who put money into a bank) against the loss of their insured deposits if an FDIC insured bank fails.  FDIC insurance is backed by the full faith and credit of the United States Government.


FDIC insurance covers all types of deposits received at the bank.  This includes deposits in checking and savings accounts, money market deposit accounts and time deposits such as Certificate Of Deposit (CD). Acording to the FDIC:

"The standard insurance amount currently is $250,000 per depositor.  The $250,000 limit is permanent for certain retirement accounts (includes IRAs) and is temporary for all other deposit accounts throught December 31, 2013.  On January 1, 2014, the standard insurance amount will return to $100,000 per depositor for all deposit accounts except certain retirement accounts, which will remain at $250,000 per depositor."

 If you want to know more you can read about FDIC insurance coverage online at: www.fdic.gov.  If you would like to calculate your insurance coverage, you can use the FDIC's online Electronic Deposit Insurance Estimator at  http://www.myfdicinsurance.gov.  Whatever bank you use make sure your bank is FDIC-insured.  You can check this out yourself by going to: http://www2.fdic.gov/idasp/main_bankfind.asp  or calling toll-free 1-877-ASK-FDIC.