FDIC Insurance Coverage: Limits and Strategies
With the recent failure of IndyMac bank, along with all of the accompanying news about banks at the risk of failure it seems like the “credit crunch” has really begun to hit home. In fact, I’ve recently heard from several readers who are concerned about the safety of their money. With that in mind, I thought I’d pull together some information on FDIC insurance coverage.
What is the FDIC?
The Federal Deposit Insurance Corporation (FDIC) is a United States government corporation created by the Glass-Steagall Act of 1933. It was created in response to the large number of bank failures during the Great Depression, and serves as a sort of safety net that guarantee deposits held by commercial banks.
What’s covered?
The FDIC insures deposits received at an insured bank. This includes deposits into check and savings accounts, money market deposit accounts, and certificates of deposit (CDs). FDIC insurance cover the balance of a depositor’s account dollar-for-dollar up to the insurance limit, including both principal and interest accrued up to the closing of the affected bank.
If you’re not sure whether or not your bank is covered (it seems that most are), look for the FDIC sign in their window or (for online banks) a graphic indicating membership on the bank’s homepage. You can also call the FDIC toll-free at: 1-877-275-3342.
What’s not covered?
FDIC insurance does not cover money invested in stocks, bonds, mutual funds, life insurance policies, annuities, or municipal securities. Note that this is true even if these investments were bought from an insured bank. The FDIC also does not insure U.S. Treasury bills, bonds, or notes — these are back by the “full faith and credit” of the U.S. government.
Limitations of coverage
The basic insurance amount is a total of $100,000 per depositor, per insured bank. This $100,000 coverage level applies to all depositors of an insured bank except for owners of certain retirement accounts, which are covered up to a total of $250,000 per insured bank. The nice thing here is that your retirement accounts are separately insured from any other deposits you may have at the same institution.
While deposits in different branches of the same insured bank are not separately insured, deposits in one insured bank are insured separately from deposits in another insured bank. Also, because coverage is determined on a “per depositor” basis, joint accounts are covered for up to $200,000. Interstingly, the FDIC provides separate insurance coverage for deposit accounts held in different categories of ownership, such that you can apparently exceed the $100k limit by holding both single and joint accounts at one bank.
One potential “gotcha” has to do with business accounts. As long as the business is a separate legal entity, then the account qualifies for it’s own coverage. But if the business is being operated as a sole proprietorship, then the deposits would fall under the sole proprietor’s limits.
Maximizing your coverage
So what should you do if you have more than $100k kicking around and you want it all insured? As noted above, joint accounts represent one way of stretching your coverage by giving you an additional ownership class. Of course, this solution is limited to those with a spouse or other trustworthy individual who could serve as the account co-owner. Another possibility would be to open accounts at multiple banks, as this would provide you with as many $100,000 limits as you have banks. A related option is the Certificate of Deposit Account Registry Service (CDARS).
I’m not going to go into the CDARS in detail here, other than to say that it provides a means for easily spreading your assets around into CDs at multiple banks. Apparently you can insure up to $50 million by doing this, with the downside being that the CD rates are typically a bit lower than you can get on the open market. Bankrate had a recent article if you’re curious about this option.
Photo Credit: kenyee
Published on July 24th, 2008 - 15 Comments
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Actually, joint and individual accounts are considered different ownership categories. As such, the balances are not combined for FDIC coverage.
Comment by F2O — Jul 24th 2008 @ 10:20 amThe link is:
http://www.fdic.gov/deposit/de.....index.html
Yes, 2 people can have a total of $400k insured at one institution. Person #1 has $100k individual acct, Person #2 has $100k individual acct, and a $200k joint account. Another helpful link is for the FDIC estimator:
Comment by tom — Jul 24th 2008 @ 10:59 amhttp://www4.fdic.gov/EDIE/
The problem is that the FDIC may run out of funding as more and more banks fail in the coming months. IndyMac already took a big chunk of it. Washington Mutual is crippled along with many other regional banks. So it’s just a matter of time before we see more bank runs and failures. So the question should really be “What if the FDIC fails?” Oh my.
Comment by Alain Wong — Jul 24th 2008 @ 1:18 pmF2O and Tom: You are correct, thanks for pointing out the error. It appears that I mis-interpreted one of their examples. Regardless, it’s fixed now.
Nickel, thanks for spreading the word on this… Many people are confused about what’s covered and unfortunately, many bank employees are unknowingly spreading false information. It seems to me that the documentation from the FDIC could be a little clearer.
Comment by F2O — Jul 25th 2008 @ 9:44 amAnother way to get around the 100k limit is by using another category of account; namely, the revocable/irrevocable trust account. These are insured up to 100k per owner, per beneficiary (but does not include the owner) therefore a couple with 3 kids could have an account set up jointly in trust for their kids and be insured up to $600,000. The couple could each have their own trust account also with the other named as beneficiary, insured up to 100k. There are some limitations for beneficiaries ( I believe it is limited to spouses, siblings, parents, children, and grandchildren) and of course, if the owner were to die, the accounts then revert to the “single account” category for each beneficiary and only go to 100k, but there is a grace period in which the funds are still insured fully so you have time to restructure.
Comment by Melissa — Jul 27th 2008 @ 2:57 pmThis was probably very confusing (I work in a bank and it still confuses me sometimes!) but it’s worth looking into for those with a large amount of funds.
The FDIC has no problem with the variations of accounts that they cover with insurance. You’re not “getting around” the 100,000 dollar limit by using different account structures, you are using it correctly.
The FDIC is not going to fail, either. Well, in reality, what you are referring to is not the FDIC but the “BIF”, the Bank Insurance Fund. The overall US government and policy of the Treasury Department won’t allow that to happen.
Sleep easy….
Comment by Greg J — Aug 25th 2008 @ 5:57 pmHow and can I put $282,000 into an ING account, can I open, three accounts, divid them equally and still be FDIC Insured?
Comment by Robert B. Langeland — Aug 25th 2008 @ 6:08 pmIn any FDIC insured bank you could do this:
RBL - 92,000
RBL and Mrs. RBL/joint account - 95,000
RBL itf junior RBL - 95,000
Another variation could be joint account with junior, etc. See the note above by Melissa for additonal ideas.
Comment by Greg J — Aug 25th 2008 @ 6:14 pmIn my experience with FDIC insurance and the Lincoln Saving failure, they insured up to $100,000 per account. However, in this case it did not mean you would receive 100% of your loss up to $100,000. It specifically meant that you would receive a percentage on the dollar of your account up to $100,000. For example, if you had $10,000 in your account, then FDIC insurance might pay you 50 cents on the dollar for a total payment of $5,000.
Comment by Melinda — Aug 25th 2008 @ 7:27 pmWhy !
Comment by Robert B. Langeland — Aug 25th 2008 @ 7:31 pmGreat article. Well written. I’m a claims agent with the FDIC & I enjoyed your article. Keep informing the public–they should and must know what’s out there for them. Les
Comment by Les — Aug 25th 2008 @ 8:19 pmIf you are really concerned, you should place your money in multiple banks rather than trying to see how many ways you can stack up multiple accounts with one bank and still get paid. If you have it all in one bank, then your risk is clearly greater — at least the risk of having to wait days or weeks or months to get access to your money if multiple banks fail at about the same point in time and the FDIC gets overworked.
Comment by Bill — Aug 25th 2008 @ 9:17 pmMelinda, what is the basis of your statement that a $10K account might only get $5K back? I think you might be misinterpreting. If a bank has only enough money to pay its depositors 50% of what they deposited, then the FDIC will only put up the other 50%, not the entire amount. So the FDIC only pays 50%, but those with under 100K balances do get 100% back, not just half.
Comment by Bill — Aug 25th 2008 @ 9:24 pm>Melinda, what is the basis of your statement that a >$10K account might only get $5K back? I think you >might be misinterpreting. If a bank has only enough >money to pay its depositors 50% of what they >deposited, then the FDIC will only put up the other >50%, not the entire amount. So the FDIC only pays >50%, but those with under 100K balances do get 100% >back, not just half.
That is correct.
Comment by Greg J — Aug 26th 2008 @ 12:53 pm