What Is a Bank Insurance Fund?

The Federal Deposit Insurance Corporation (FDIC) is an American institution that inspires confidence in investors by insuring funds deposited by citizens into banks and thrift organizations. The Bank Insurance Fund (BIF) is one way the FDIC insures deposits. This fund was made to help bank customers if a bank goes bankrupt. Each account holder is entitled to $250,000 US Dollars (USD) if the bank is bankrupt and cannot repay funds deposited by the account holder. The Bank Insurance Fund does not cover thrift organizations; this is covered by another branch of the FDIC.

The creation of the Bank Insurance Fund started in the late 1980s. At the time, more than 700 savings and loan banks, known as thrift banks, shut down because of bankruptcy. This caused a large economic backlash and, to ease banking customers' concerns, the fund was created to ensure investors that their money was safe and to help those who lost money in a banking collapse. The FDIC promised to insure $100,000 USD for each account holder, but that amount rose in 2008 to $250,000 USD.

While thrift organizations inspired the Bank Insurance Fund, they are not covered under the BIF policy; instead, for administrative reasons, they are covered under a similar policy called the Savings Association Insurance Fund (SAIF). A thrift organization, or thrift bank, is a smaller bank that is usually community-based. Its main functions are to provide savings accounts and loans, usually home mortgages. They also can provide services such as checking accounts and credit cards.

The FDIC offers may types of coverage policies, but the Bank Insurance Fund only protects customers of retail and commercial banks. When these banks become insolvent or bankrupt, they may be unable to pay their customers the full amount owed based on their account deposits. Instead of just leaving customers without their money, the Bank Insurance Fund will pay the difference between what the bank can pay and how much the account was worth. Each account holder is eligible for up to $250,000 USD per bank. This means that, if a person is an account holder at two different banks and both go bankrupt, the account holder is eligible for up to $500,000 USD.

In 2005, Congress combined the BIF and SAIF. This created a single pool of money for both retail and commercial banks, and thrift banks. Together, these two funds are known as the Deposit Insurance Fund (DIF).