The Federal Deposit Insurance Corporation (FDIC) has provided deposit insurance coverage to depositors of banks since 1933. All types of deposits at financial institutions in their usual course of business are insured. This includes all savings deposits, checking deposits, Certificate of Deposits (CDs), Christmas Club accounts, etc. Securities, mutual funds, and similar investments are NOT covered even if they are purchased through a bank. Safe deposit contents are also not covered.
A depositor is normally insured up to $250,000 in each insured bank. Accrued interest is also covered when calculating insurance coverage. Deposits held in one bank are insured separately from any deposits held in another separately insured bank. Funds deposited in separate branches of the same bank are not separately insured.
Example: John deposits $250,000 in Bank A and $250,000 in Bank B. Each of John’s $250,000 deposits is fully covered. However if John deposits $500,000 in two branch locations of Bank A, only $250,000 of the total $500,000 Bank A deposit is covered.
FDIC coverage is not determined on a per-account basis, but on an ownership basis. This means that a bank customer who has multiple deposits may qualify for more than $250,000 in insurance coverage if the customer’s accounts are deposited in different ownership categories and the requirements for each ownership category are met.
Each of the following account ownership categories have their own separate $250,000 coverage.
- Single ownership accounts
- Joint ownership accounts
- Business accounts
- Revocable trust accounts
- Retirement accounts
Single Ownership Accounts
A single account is one owned by one person. All single ownership accounts are added together.
Example: Sally has two accounts in her own name with no joint owners. One account has a $100,000 balance and the other has a $200,000 balance. Only $250,000 of Sally’s accounts are insured.
Joint Ownership Accounts
A joint account is owned by two or more people. Each co-owner’s share of each joint account at each bank are added together with his or her joint account shares at the same bank, and the total is insured up to $250,000. All co-owner’s shares are considered equal unless the deposit account records state otherwise.
Example: John and Sally have a joint account with $500,000 in it. Each has a single account with $200,000 in each account. The balance in the joint account has its own $250,000 coverage limit per owner, so John and Sally each have $250,000 of coverage in the $500,000 joint account. Additionally, John and Sally have $250,000 of coverage available in their single ownership accounts so each of their $200,000 single ownership accounts is fully covered.
Corporate, partnership, and LLC accounts are considered owned by the entity and not by the individual owners. Therefore, the entity accounts are insured separately from the personal accounts of the owners.
Revocable Trust Accounts
This includes pay-on-death accounts and formal written revocable trusts created for estate planning purposes (usually referred to as living trusts). Each owner and beneficiary has his or her own $250,000 coverage limit.
Example: John and Sally have a joint living trust with their two children as beneficiaries. The trustees deposit $1,000,000 into a bank. The two owners and the two beneficiaries each have their own $250,000 coverage limits so the $1,000,000 is fully covered.
Up to $250,000 in deposit accounts is provided for deposits a customer makes at the same bank in a variety of retirement accounts including IRAs, Roth IRAs, SEP IRAs, and SIMPLE plans.
Example of Maximizing FDIC Coverage
John and Sally have the following accounts at one bank. They have a son named Timmy. Each of these accounts is fully insured:
John single ownership account $250,000
Sally single ownership account $250,000
John & Sally joint account $500,000
John IRA $250,000
Sally IRA $250,000
John POD to Sally $250,000
Sally POD to John $250,000
John & Sally living trust (Timmy is beniary) $750,000
Total Insured $2,750,000
Another option for keeping funds at the same bank is to use the Certificate of Deposit Account Registry Service ® (CDARS). Using CDARS, deposits over $250,000 are placed by a participating bank into smaller denomination CDs at multiple FDIC insured banks.
To see how this applies to you, give us a call at 248-538-5331.
Buzzkill Disclaimer: This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.