First, remember that FDIC insurance protects only deposits. Products such as mutual funds, annuities, stocks, bonds and U.S. Treasury securities are not deposits and therefore are not protected by the FDIC. Mutual funds, stocks and bonds are subject to investment risks, including the possible loss of principal, even if you bought them from your FDIC-insured institution. Treasury securities and Savings Bonds, while not insured by the FDIC, are backed by the full faith and credit of the U.S. government.

Two products that are easy to confuse because they have similar names are Money Market Deposit Accounts and money market mutual funds (often called money market funds). MMDAs, as we described previously and as the name indicates, are deposits and, as a result, are covered by FDIC insurance. Money market mutual funds, on the other hand, are funds that invest primarily in short-term corporate bonds or government securities and are not deposit accounts insured by the FDIC.

To minimize potential confusion about which products are FDIC-insured, banks and savings institutions are required by

$100,000 FDIC Insurance—What's Included

federal banking regulators to clearly differentiate insured deposits from investments, both in their sales practices and their advertisements. For example, to the extent possible, investment sales should not take place in a bank's teller area. Institutions also must ensure that sales personnel are properly qualified and trained, and that they recommend investments that are suitable for each customer. In addition, when offering or advertising an investment product to a customer, FDIC-insured institutions must indicate that the investment:

 

• Is not FDIC-insured;

   

   

• Is not guaranteed by the bank or savings institution; and

   

   

• Is subject to investment risk, including the possible loss of principal.

   

Before an investment sale is completed, a customer also must sign a statement saying that he or she understands that a particular investment carries risks and is not backed by the FDIC. "Investments often are an important part of a person's overall financial plan," says Amy Aulthouse Mitchell, a securities specialist with the FDIC in Washington. "We simply want customers to understand, before committing to an investment, that they would be moving beyond the protection of a deposit and into a product that may lose value."

Mitchell also notes that the bank regulatory agencies recently adopted similar consumer protections governing insurance sales. The new rules, which will become effective on October 1, 2001, require banking institutions to notify customers that insurance products and annuities are not FDIC-insured and, where appropriate, are subject to investment risk.

The rules also prohibit institutions from "tying" loan decisions to insurance sales. For example, a bank can't condition its approval of your auto loan on whether you buy car insurance from that bank or one of its affiliates. "In essence, the consumer is free to purchase the insurance from any source, and the bank must explain that to the consumer," says Keith Ligon, a supervision policy chief for the FDIC in Washington.

Table of Contents
 

Increased Need For Knowledgeable Consumers

What is Insured?

Questions to Ask Before Buying an Investment

• What types of investment products would be suitable for my needs? 
• What are the chances I could lose money?
• Who should I contact if I have questions? 

How to Tell the Difference

$100,000 FDIC Insurance: What's Included

Final Thoughts - Conclusion

For More Help or Information

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Source: Federal Deposit and Insurance Corporation (FDIC)