Most of us have heard the term “FDIC Insured,” but few actually realize what that means. The organization got its start in 1933, four years after the crash of the stock market in 1929. The history of the FDIC paints a picture of a country that hoped to shield its citizens from the potential troubles a bank giant could cause.

The Beginning

Over 9,000 banks failed as a direct result of the stock market crash of 1929, and the American financial market was in ruin. Roosevelt was forced to admit that the banking system had failed, and the government was stepping in to save it.

The first thing the government did was to create the Banking Act of 1933. This legislation created the FDIC, and it was modeled after the deposit insurance program used by the state of Massachusetts. The rule stated that the FDIC would guarantee a certain amount of a customer’s savings and checking deposits as long as the bank was a member of FDIC.

Reaction

The initial reaction was negative. Business men at the time felt that the FDIC incentivized failure, supporting bad business activity through guaranteed payment. But the organization would prove successful by 1934.

What is Covered

The FDIC covers a certain amount of money, which includes a customer’s principle and accrued interest. Today that toal is up to $250,000, but the intial coverage was set at $2,500. FDIC insurance covers all types of savings, checking and cashier’s checks. It does not insure mutual funds, annuities, life insurance and bonds.