Are your bank deposits fully insured by the FDIC?
July, 2008
By
Darin Christensen
With the recent failure of IndyMac Bank, F.S.B. (the largest U.S. bank failure in years) and speculation that other banks may follow, a lot of people are concerned about whether their bank deposits are fully insured. This alert outlines the basics of FDIC insurance coverage and ways that you can increase your FDIC insurance coverage.
Overview
Basic FDIC insurance coverage at each bank is $100,000 per account owner. If you have more than $100,000 deposited with any FDIC insured financial institution (regardless of the number of accounts you have there), you should review your accounts to see if you are fully covered if the financial institution fails.
Only deposit accounts are covered (checking, savings, money market deposit accounts, CDs, etc.). Other accounts like brokerage accounts are not insured (although the deposit account portion of a brokerage account may be covered).
Because each bank is looked at separately, coverage can be increased by opening accounts at multiple banks. Although this increases your coverage, it increases the complexity of tracking your deposits and your flexibility in dealing with them.
Having additional accounts at the same bank (even if opened at different branches) in the same ownership category does not increase coverage. However, with an understanding of the convoluted FDIC rules, you can greatly expand the amount of coverage at each bank.
Different Ownership Categories
The primary way to increase coverage is to own accounts in different ownership categories. Accounts that fit in different ownership categories each separately qualify for coverage. The FDIC has eight ownership categories for accounts. They are:
1. Single
2. Joint
3. Certain Retirement Accounts-- IRAs (in all their varieties), self-directed 401(k) plans, 457 plans, and self-directed Keogh accounts. This category also has $250,000 of insurance coverage per owner.
4. Revocable Trusts and pay on death accounts (generally $100,000 per owner per qualified beneficiary; a joint revocable trust or pay on death account for a couple with 6 children or grandchildren as beneficiaries would qualify for $1,200,000 of insurance)
5. Irrevocable Trusts (can be $100,000 per beneficiary)
6. Employee Benefit Plan Accounts
7. Corporations, Partnerships, and Unincorporated Associations ($100,000 each if engaged in independent activity and not set up to increase insurance limits)
8. Government Accounts
Unused coverage in one category does not protect excess deposits owned in another category. For example, if Mary has $125,000 total in 2 personal bank accounts and $175,000 in a joint account with her husband, $25,000 of the amount in her personal bank accounts is uninsured even though the joint account could have $25,000 more that would be covered.
Additional Information
This alert provides just a cursory and incomplete overview of the applicable rules. If you have additional questions about your FDIC insurance, please contact your BHB attorney. The FDIC provides extensive detail on deposit insurance in its website at www.fdic.gov/deposit/deposits/index.html. It also has a calculator that can be used to determine whether your accounts are fully insured at www.fdic.gov/EDIE/.