The Federal Deposit Insurance Corp. (FDIC) provides protection for deposits in U.S. banks and thrifts in the event of a bank failure. It doesn't provide protection against identity theft.
When a third party gains access to your bank account and conducts transactions without your consent, the FDIC doesn't have jurisdiction to protect consumers against this type of criminal activity, which is outside its role of ensuring confidence in the U.S. banking system.
Key Takeaways
- The Federal Deposit Insurance Corp. (FDIC) is a deposit insurance program backed by the U.S. government that protects bank depositors for up to $250,000 per depositor, per account.
- The FDIC doesn't cover instances of identity theft and the financial losses that may accompany it.
- Many credit card companies and banks have customer protection plans in place to protect against identity theft or to recover funds from fraudulent purchases.
- Credit reporting companies and private insurers also offer fee-based identity theft protection plans, but their benefits have mixed reviews.
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What the FDIC Covers
The Federal Deposit Insurance Corp. (FDIC) solely provides coverage for deposits in eligible FDIC-insured accounts in the unlikely event of the financial failure of that bank or savings institution.
Eligible accounts for insurance coverage are checking accounts, savings accounts, money market deposit accounts, certificates of deposit (CDs), cashier's checks, money orders, and other official items issued by an FDIC-covered bank.
Each one of your eligible accounts per insured bank is covered for a total of up to $250,000. If you have a checking account with a $300,000 balance at an FDIC-covered bank, $50,000 of your funds in that account aren't insured by the FDIC and should be transferred to another insured bank for FDIC coverage. The same holds true for business accountsbut not for mutual funds, which aren't covered.
What To Do in Case of Identity Theft
When you notice suspicious activity on your bank account, report your loss to your financial institution and local law enforcement authorities right away. The FDIC also recommends notifying your local, state, or federal consumer protection agency. Use this directory to find the contact information for your state's consumer protection office.
By acting quickly, you increase your chances of recovering your lost funds and help local authorities protect other members in your community. Some best practices to catch identity theft early are to check your monthly bank statement every month for any suspicious activity. If you receive paper copies, contact your bank right away if you don't receive one by its usual arrival date. Identity thieves may try to intercept or divert account statements to get access to your funds.
Identity Theft Protection Plans
Most identity theft protection services offer similar levels of customer support through the identity theft prevention and recovery processes, but you can usually do most—if not all—of what they offer yourself for free. What’s more, the insurance is subject to numerous restrictions and limitations, most notably not kicking in at all until the benefits from another insurance policy you probably already have are exhausted.
Note
Perhaps the biggest problem with any identity theft protection service is that there’s no way to know how well it works unless you find out that your identity is stolen and you need to take advantage of the service’s recovery assistance and insurance.
So do you really need an identity theft protection service? According to theBureau of Justice Statistics’ 2018 Crime Victimization Survey published in 2021 andthe most recent data available, an estimated 23 million persons, or about 9% of all U.S. residents age 16or older, reported that they had been victims of identity theft during the prior 12months.
At the time of their interviews, 12%of identity-theft victims had experienced out-of-pocket losses of $1 or more, with a mean out-of-pocket loss of $640 and a median of $100. Credit card issuers or insurers reimbursed some of these losses, although the average amounts weren't reported in the Bureau of Justice Statistics study.
If you’re considering signing up for any identity theft protection service, read the terms and conditions carefully to see what you’re really getting for your money before handing over your credit card number. And be sure the price is clear, including what happens after any free introductory period ends.Also, watch for arbitration clauses that could ban your joining a class-action lawsuit, should problems arise.
What Is Identity Theft?
Identity theft is a type of fraud where someone uses your personal information such as your Social Security number or bank account number to open accounts or initiate transactions using your name, without your permission.
Does the FDIC Insure Against Theft?
FDIC deposit insurance doesn't protect against losses due to theft or fraud, which are addressed by other laws. FDIC insurance also doesn't protect against the default, insolvency, or bankruptcy of any non-bank entity, including crypto custodians, exchanges, brokers, and wallet providers.
Besides Identity Theft, What Are Three Other Things Not Insured by the FDIC?
Investment products that aren't deposits such asmutual funds, annuities, life insurance policies, and stocks and bonds aren't covered by FDIC deposit insurance.
The Bottom Line
Though the FDIC does protect deposit accounts against bank failures, it doesn't cover any losses related to identity theft. To protect against identity theft, it is recommended that you monitor your bank accounts, report any irregularities to your bank and law enforcement agencies, and, depending on certain factors, purchase identity theft protection plans. One of the best credit monitoring services could prove useful in this endeavor, as several of them offer identity protection tools and services.
