What is the primary purpose of FDIC insurance?

The primary purpose of FDIC insurance is to protect depositors in case of bank failure. This insurance provides a safety net for individuals and businesses that hold deposits in insured banks, ensuring that their funds are safeguarded up to the insured limit in the event that the bank becomes insolvent or fails. This protection helps maintain public confidence in the financial system, encouraging people to deposit their money in banks rather than hoarding cash or seeking riskier investment alternatives.

This assurance not only supports individual depositors but also contributes to overall financial stability by preventing bank runs, where mass withdrawals could destabilize banks and the banking system as a whole. It is essential for maintaining consumer trust, which is crucial for the health of the banking system and the economy.