Extra! Extra! The New FDIC Scoop
Get an overview of FDIC insurance as well as the latest updates to coverage limits.
Laura Adams, MBA
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Extra! Extra! The New FDIC Scoop
This is a special extra episode to make sure you have the most up-to-date information about recent changes to FDIC insurance. From the many emails I’ve received from listeners about the FDIC, I know this is a topic that really hits home right now.
…like this email from Patrick:
“Hi Laura, I have one question regarding holding more than $250,000 in a single SEP IRA account. First, I fully understand the money is not FDIC-insured if it is in stocks etc. However, if I allocate it to different FDIC-insured CDs, at different institutions, would it then all be insured?
For example, if I had a $100,000 FDIC-insured CD at Bank A, and a second $100,000 FDIC-insured CD at Bank B, and a third $100,000 FDIC-insured CD at Bank C, would they all be fully insured, even if all 3 banks failed? Thank you in advance for your expertise.”
Well, thanks for the question Patrick. And have no fear! Money Girl is at your service to help you know if you need to take quick action to protect your funds.
New, but Temporary Legislation
The good news is that as of October 3rd, new legislation in the Emergency Economic Stabilization Act of 2008 increased the basic deposit insurance limits. But this is a temporary measure that’s just in place until December 31st of 2009.
FDIC Overview
Here’s a quick overview to which Patrick alluded: FDIC insurance only applies to deposits such as checking accounts, savings, money market deposit accounts, and certificates of deposit (CDs). It does not insure any type of financial product such as mutual funds, stocks, bonds, or insurance.
First, I want to make sure you understand the following two important points about coverage:
- You receive separate coverage for deposits held at different FDIC-insured institutions.
- At each institution, you receive separate coverage for deposits that fall under different types of account ownership categories.
It’s All About the Account Type
The most common ownership categories for individual depositors are single accounts, joint accounts, trust accounts, and retirement accounts. You can have all these different types of accounts open at one FDIC-insured bank, and still get full coverage for each account category. It doesn’t matter whether it’s a checking account, savings, or CD—what matters is how the account is owned. The coverage limits apply to the total of all deposits per depositor per account category.
Let’s go through each of the most common account types. I’ll give you the updated insurance limits and an example for each one.
Single Account Ownership
Single accounts are those that are held in the name of one person. The coverage used to be $100,000, but has been raised to $250,000. Consider this example: If you have a checking account with $75,000 and a CD worth $200,000, and they are both single accounts at the same institution, you have $25,000 that’s unprotected. This is because your total insurance limit for single accounts at any given FDIC institution is $250,000. Since your single ownership accounts total $275,000, the best way to protect your money would be to transfer the excess $25,000 to a new account at a different FDIC-insured bank.
Joint Account Ownership
Joint accounts are those held in ownership by two or more people. This coverage has also been increased from $100,000 to $250,000 per co-owner. So if you and a spouse have both your names on a savings account or CD, for example, you each have $250,000 in total joint account coverage per FDIC-insured institution. So as a couple, you have half a million dollars in coverage at that bank.
Trust Account Ownership & Simplified Rules
Trust accounts are a little more complicated, and there are two separate categories that each qualify for full insurance. These are revocable trusts and irrevocable trusts. I’m only going to discuss the informal revocable trust because it’s the most common type for individuals. It’s also known as a POD, or payable on death account. These are deposits owned by one or more people who intend to give the money to one or more named beneficiaries upon their death.
The FDIC just simplified the rules for revocable trusts at the end of September, which is another reason why I wanted to get this update show to you. Beneficiaries used to be restricted to close family members. But now a POD beneficiary can be any person, charity, or IRS approved non-profit organization!
All deposits in informal or formal revocable trust accounts are added together and have insurance of $250,000 per owner per beneficiary up to $1.25 million. An example of a trust would be a mother who wants to leave a CD to her son and to her best friend, split 50-50 between them, upon her death. If she set the CD up as a POD account, she is insured up to $250,000 for each beneficiary, or for $500,000 in this example. Remember that the coverage for each trust owner is calculated by multiplying $250,000 times the number of beneficiaries. It’s an error to count the number of owners plus the number of beneficiaries times $250,000.
Retirement Account Ownership
There has been no change to the coverage for retirement accounts. It was $250,000 per owner and remains at $250,000. Now let’s get back to Patrick’s question. He said he has more than $250,000 in his IRA and wants to know if spreading it around to different FDIC-insured banks would keep him covered. Yes, that’s the perfect strategy to protect the money. But now Patrick won’t have to spread it around to quite as many different institutions. Let’s say he has $300,000 in his IRA. He could move $50,000, to a retirement account at a different FDIC-insured bank. He’s insured for a total of $250,000 in retirement accounts per institution. So if both of his banks fail, he’s still sitting pretty for retirement.
Electronic Insurance Calculator.
This new FDIC site has an insurance estimator that makes it easy to understand if you’ve exceeded your coverage for personal or business deposits.
If all these numbers have left you spinning and you need further clarification, I recommend you visit myFDICinsurance.gov
I’m glad you’re listening. Keep the great emails coming to money@quickanddirtytips.comcreate new email“>money@quickanddirtytips.comcreate new email. You can find a transcript of this episode as well as all the other great Quick and Dirty Tips podcasts at quickanddirtytips.com.
Chi-Ching, that’s all for now, courtesy of Money Girl, your guide to a richer life.
Dollar Sign image courtesy of Shutterstock
About the Author
Laura Adams received an MBA from the University of Florida. She’s an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura’s previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.