Are Your Bank Accounts Fully Insured?
August 16, 2010
The Federal Deposit Insurance Corporation (FDIC) is the entity that pays depositors when a bank fails. What you need to understand is that the amount per account is limited and some types of accounts are not covered at all.
The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the United States government. The agency provides deposit insurance to over 8,500 banks and savings associations. If an insured bank fails, the FDIC steps in to reimburse depositors. The maximum that a depositor can receive is $250,000 per account type.
What does FDIC cover?
The FDIC insurance covers only bank deposit accounts, i.e. cash that the bank is holding on your behalf in either checking or savings accounts or as certificates of deposit. In addition, bank-held retirement accounts and beneficiaries of trust accounts and accounts with payable-on-death designations are covered.
What is not covered by FDIC?
The FDIC coverage does not include stocks, bonds, mutual funds, annuities, life insurance, or other types of securities even if they were purchased from the bank.
Bank Brokerage Division. Many banks have brokerage divisions where bank customers are referred to set up accounts in order to purchase mutual funds, money market funds, individual stocks and bonds, or Treasury bills. The investments in these accounts are not covered by FDIC insurance.
Checking Account with Insurance Companies. Insurance companies offer the beneficiaries of life insurance policies the opportunity to leave the policy proceeds in a checking account instead of receiving the funds as a lump-sum payment. For many beneficiaries, this is a nice alternative to making a quick decision regarding what to do with the proceeds. This account is held by the insurance company. Unfortunately, many consumers assume that these dollars are FDIC insured; however, they are not. Since it is an insurance company and not a bank that is holding the funds, the FDIC coverage does not apply. If the insurance company fails, the state insurance guaranty fund would be the responsible agency.
How is the FDIC insured amount calculated?
Whether all or only a portion of the money you have on deposit at a bank is secure depends on the type of account. If you have less than $250,000 in any one bank, you are fully insured. If you have more than $250,000, the amount covered will depend on the category of ownership.
Single Accounts. All accounts titled in your name alone are covered up to $250,000 per insured bank. To determine the amount of your coverage, add up the values of each of your checking accounts, savings accounts, and certificates of deposit in that bank. For example, if you have a checking account with $10,000, a savings account with $25,000, and an $80,000 certificate of deposit, the total deposit in your individual name at that bank is $115,000. Since this total is less than $250,000, the entire amount is covered by the FDIC insurance.
Joint Accounts. In addition to the funds held in your individual name, you are also insured for your portion of any joint or co-owned accounts up to $250,000. If you and your spouse have a joint savings account and jointly-titled certificates of deposit totaling $350,000, you are each covered for your individual half equaling $175,000. If you also own a $200,000 certificate of deposit with your father, the $100,000 attributed to you puts your total joint account exposure to $275,000. The FDIC will only insure up to $250,000, leaving your remaining $25,000 uninsured.
Retirement Accounts. The FDIC insures your retirement accounts up to $250,000 per institution. This includes all types of IRAs, Section 457 accounts, Keogh plans, and any self-directed 401(k), profit sharing, or money purchase retirement plans.
Based on the above, a person could have as much as $750,000 of FDIC coverage per insured bank: $250,000 in individually-owned accounts, $250,000 in co-owned or joint bank accounts, and $250,000 in retirement accounts.
POD and Revocable Trust Accounts. Additional FDIC coverage is available for accounts that pay the funds to named beneficiaries at the death of the owner. Examples would be payable-on-death (POD) accounts or revocable living trust accounts. (Even though retirement accounts have designated beneficiaries, they are not included in this category.) The FDIC insurance for POD and revocable trust accounts is equal to $250,000 per qualifying beneficiary. A qualifying beneficiary is the owner’s spouse, child, grandchild, parent, or sibling. This would mean that a POD account that names your two children as the beneficiaries would have up to $500,000 of FDIC insurance.
Summary
Determining whether all your bank funds are fully covered by the FDIC insurance can get complicated if you have multiple account types. However, the FDIC has developed an Electronic Deposit Insurance Estimator (EDIE). You enter your account information for one or more banks by account type and the program determines whether your accounts exceed the FDIC insurance limits. You can access the program by going to www.fdic.gov and looking for the EDIE calculator.
