FDIC stands for Federal Deposit Insurance Corporation, which is a Unites States federal government corporation established by the Glass–Steagall Act of 1933 and signed into law by President Franklin D. Roosevelt on June 16, 1933, as part of the Banking Act of 1933.
FDIC insurance covers all types of deposits made at an insured bank, including deposits in a checking account, negotiable order of withdrawal (NOW) account, savings account, money market deposit account (MMDA) and time deposits such as a certificate of deposit (CD).
The FDIC does not insure safe deposit boxes or their contents. It also does not cover money invested in stocks, bonds, mutual funds, life insurance policies, annuities or municipal securities, even if these investments are purchased at an insured bank. Nor does the FDIC insure U.S. Treasury bills, bonds or notes.
Those accounts that are covered by FDIC insurance are protected for up to $250,000. If you have over $250,000 in a FDIC insured account, then if the bank collapses you stand to lose the amount over the $250,000 insurance limit. However, if you are lucky enough to have far more than $250,000 that you want to keep in the bank, then you can divide the money up between banks so that no more than $250,000 is in any single bank. This way your money is protected by FDIC insurance up to the $250,000 limit in each of the FDIC insured banks that you have funds deposited in.
The FDIC claims that no depositor has ever lost any money that was covered by FDIC insurance.
The reason for establishng FDIC insurance was to prevent a "run" on the banks from ever occurring again. During the early days of the Great Depression many people hurried to pull their money out of their banks and this caused many banks to collapse. With FDIC insurance people can rest assured that their money is safe being left in the bank.
It's A Wonderful Life (1946) Run On The Bank clip:
This clip contains a very insightful look at the problem of runs on the banks in the days before FDIC insurance, as Jimmy Stewart has to convince his Savings and Loan depositors to leave their money with him in order to save the Savings and Loan from going under.