What is FDIC insurance and how does it work?

When you enroll in PayPal features that include pass-through insurance (currently only available to select U.S. customers in beta), all funds held in U.S. Dollars (USD) in your PayPal balance will be deposited by PayPal into one or more custodial accounts that we have set up at FDIC-insured banks.  Presently, we deposit all of those funds into an account at Wells Fargo Bank, N.A., but we can move the funds to custodial accounts at other FDIC-insured banks chosen by us at any time and without notice.

If one of the banks in which we have deposited your funds fails, your funds should be eligible to be insured by the FDIC up to the standard deposit insurance amount (currently $250,000).  When determining your coverage limit, the FDIC will add the funds in your eligible PayPal account to amounts you have on deposit in other accounts you have at the same bank.