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Bank Savings
- FDIC Insurance
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Savings Accounts
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Money Market Accounts
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Money Market Mutual Funds
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Certificates of Deposit (Time
Deposits)
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Holiday Savings Clubs
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Vacation Savings Clubs
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Treasury Savings Bonds
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FDIC Insurance
www.FDIC.gov is a must see
website
To prevent a recurrence
of the banking failures that followed the 1929 crash, where depositors lost
everything if their local banks failed, the government created a safety net
to pay depositors their balances, dollar for dollar, in the event of a bank
failure. Since the establishment of the FDIC in 1933, not one penny has been
lost to depositors, on insured funds, as a result of a banking failure.
The FDIC (Federal
Deposit Insurance Corporation) was established by congress as a safety net
for depositors, and as a way to promote stability and regain public
confidence in the nation’s financial system. Currently, the FDIC insures
bank deposits up to $100,000 per depositor, per bank (not per branch). Only
bank deposits are insured and include: checking, savings, now, money
markets, CD and retirement accounts. All other banking products, such as US
treasury bills, bonds, securities, insurance, mutual funds, annuities and
safety deposit boxes are not FDIC insured. The insurance covers principal
plus accrued interest though a bank’s closing date. US treasury bills, bonds
and notes are guaranteed by the federal government, and therefore not
insured by the FDIC
FDIC insurance can
exceed $100,000 per depositor if various ownership categories are in use.
Each category gets the additional coverage! However, multiple accounts per
depositor under the same category are aggregated. If, for instance, a
depositor has checking, savings & CD accounts all under the same name, they
all count as a single account for insurance purposes.
The four critical
ownership categories are:
- Single Accounts
– $100,000 per depositor.
- Joint Accounts
- Deposits owned by two or more people; each co-owner must have equal
rights to withdrawal money and documented on the signatory cards. –
$100,000 per depositor.
- Self Directed
Retirement Accounts (IRA, Roth
IRA, Keogh) $100,000 per depositor – numbers of beneficiaries do not
affect the insurance limits.
- Revocable Trust
Accounts –$100,000 per
depositor, per qualifying beneficiary. Qualifying beneficiaries include
spouse, children, grandchildren, parents, siblings, as well as adopted and
stepchildren. Additionally, the beneficiaries must be named in the account
records, and the title on the account must indicate that the account is an
informal revocable trust account. Common terms used are: Payable on Death
(POD); In Trust For (ITF); or As Trustee For (ATF).
For
example, given a husband, wife and two children with one grandparent:
- If both parents have
single accounts with $125,000, owned individually, under each name,
they will be insured for $200,000 or $100,000 each; $50,000 will be left
uninsured.
- If the same parents
have a joint account with $225,000, they will be insured for
$200,000 or $100,000 each; $25,000 will be left uninsured. Including the
above items, $400,000 is insured by the FDIC.
- If the husband has an
additional $50,000 joint account with his mother, the husband has
already reached the insurance limit, so his half is uninsured. His mother
is insured for her half, or $25,000. In total, $425,000 is insured by the
FDIC.
- If the same parents
have separate self directed retirement accounts (IRAs) totaling
$100,000 each, they will be insured for another $200,000. The FDIC
coverage now amounts to $600,000 plus the $25,000 for the grandmother.
- If the parents have
an informal joint revocable trust (POD) totaling $400,000, each
naming two children as beneficiaries, they are insured for an additional
$400,000 or $100,000 for each “qualifying beneficiary.” The total FDIC
insurance coverage amounts to $1,000,000 plus the grandmother’s $25,000.
All in one bank.
Maximizing the FDIC
insurance is no different then estate planning. The titling of the accounts
on the signature cards is paramount.
Savers,
young and old alike, need to thoroughly understand the FDIC insurance rules.
If all else fails, FDIC insured accounts can act as a “nuclear bomb shelter”
for your money.
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