What is the function of deposit insurance?

The function of deposit insurance is to ensure that depositors do not lose money if their bank goes bankrupt. This system is designed to maintain public confidence in the financial system and to protect individuals' savings up to a certain limit, which is particularly important during times of economic uncertainty or bank failures. By guaranteeing deposits, deposit insurance helps to stabilize the banking system and encourages individuals to keep their money in banks, knowing that their funds are secure even in adverse circumstances. This safety net is essential for individuals and contributes to the overall stability of the economy.