Are You FDIC Insured?
Recently, the banking sector has experienced volatility that has called into question the stability of a handful of major financial institutions. This has led to valid concerns over the security of large deposits held by certain banks, which begs the formidable question: Are you FDIC insured?
Since 1933, the Federal Deposit Insurance Corporation (“FDIC”) has been backed by the full faith and credit of the United States government, insuring deposits against bank failures up to certain limits. Our goal is to highlight the basic FDIC eligibility and limit guidelines for accounts owned by (i) sole individuals, (ii) joint owners, (iii) revocable trusts (or accounts with payable on death designations), and (iv) business entities. With these considerations in mind, you are able structure your deposits to maximize your FDIC protection.
As a baseline, if your family has less than $250,000 at an FDIC insured institution, your deposits are fully insured. If your family has more than $250,000 deposited, you still may be fully insured, but the math gets a bit fuzzier.
To determine whether your bank is FDIC insured, check here.
Sole Individuals
Accounts in one person’s name, with no additional beneficiaries, are insured up to $250,000/financial institution. A common misconception is that opening a new account with the same institution provides an additional $250,000 of insured deposits. However, all of your single accounts at the same institution are added together for purposes of applying the $250,000 in insurance coverage.
For example, if you have a savings account with $100,000 and a money market account with $250,000, both in your name only at the same institution, the two accounts will be aggregated by the FDIC, making $250,000 insured and leaving $100,000 uninsured.
Joint Accounts
Accounts titled with two or more owners and no additional beneficiaries are insured up to $250,000/co-owner/financial institution. A co-owner’s proportionate share of all accounts at the same institution are added together and the total is insured up to $250,000. This category includes accounts owned as joint tenants with a right of survivorship, tenants by the entirety, and as tenants in common.
In determining a co-owner’s proportionate share, the FDIC looks to the number of co-owners and treats each owner as having an equal share. In other words, if there are two co-owners, each is treated as owning 50% of the account balance, and if there are four co-owners, each is treated as owning 25% of the account balance.
For example, a married couple as joint owners on a savings account, a checking account, and a money market account at the same bank have a combined total of $500,000 of insured deposits between the three accounts.
Revocable Trusts and Payable on Death Designations
Accounts owned by revocable trusts, or owned with payable on death designations (“POD”), are insured for each owner based on the number of named beneficiaries, and in some instances, based on the specific interests allocated to each beneficiary. This category is unique because coverage is not based on the number of owners. The insured amount is calculated separately for each owner based on the following:
Five or Fewer Beneficiaries: If the trust or account has five or fewer beneficiaries, each owner’s insured amount is $250,000/beneficiary.
Six or More Beneficiaries: If the trust or account has six or more beneficiaries, each owner’s insured amount is the greater of either (i) each beneficiary’s actual interest in the deposits, with no beneficiary’s interest to be insured for more than $250,000, or (ii) $1,250,000.
For example, Husband and Wife have a $2,000,000 account in the name of their Living Trust, which names their three children as beneficiaries. The account is insured up to $1,500,000. As owners and creators of the trust, Husband and Wife are each eligible for $250,000 of coverage/beneficiary.
Business Entities
Corporation, partnership, and unincorporated association accounts are insured up to $250,000/financial institution. These amounts are insured separately from the personal accounts of any stockholders, partners, or members. However, creating separate business accounts at one institution, even if designated for different purposes, does not give you an additional $250,000 of insured deposits. If an organization has divisions or departments that are not separately incorporated, the accounts at a particular institution will be aggregated to max out coverage at $250,000. For private equity groups that create LLCs or LPs for each specific deal, each LLC/LP should receive a separate $250,000 worth of coverage.
By design, these FDIC guidelines limit the ability of depositors to fully insure large amounts of capital. After structuring your deposits at a particular financial institution to maximize protection, the next step to increase FDIC coverage is to diversify the institutions where you hold assets. By creating accounts at additional banking and savings associations, you are able to strategically take advantage of the guidelines to secure protection of your wealth.
For a more detailed analysis of how the FDIC guidelines apply to your personal financial situation, please click here.
The accounts discussed in this article refer to deposit accounts, NOW accounts, savings accounts, money market deposit accounts, and certificates of deposit. Stocks, bonds, mutual funds, life insurance policies, annuities, and municipal securities are not FDIC insured.
