FDIC Insurance: Am I Adequately Insured?

The Federal Deposit Insurance Corporation (FDIC) was created as a response to the Great Depression when many banks went bankrupt and customers lost all the money in their bank accounts.  Created in 1933, the FDIC is an agency of the United States Government which guarantees customer deposits (up to certain limits) if an FDIC-insured bank or savings institution fails.  According to FDIC reports, in the past 15 years, 127 FDIC-insured bank or saving institutions have failed.

What Does FDIC Protect?

FDIC insures all deposits at FDIC-insured banks, including checking, NOW and savings accounts, money market deposit accounts, and certificates of deposit (CDs), up to the insurance limit.

The FDIC does not insure the money you invest in stocks, bonds, mutual funds, life insurance policies, annuities, or municipal securities, even if purchased from an FDIC-insured bank.

How Much is Insured?

The basic rule is that the FDIC will insure up to $100,000 per account holder, per bank.  In addition to the $100,000 per bank, the FDIC will also insure up to $250,000 per account holder, per bank, for certain individual retirement accounts (IRA’s). 

Example:  Sam has a $50,000 CD, a $75,000 checking account and a $200,000 IRA with one bank.  The $200,000 IRA is fully insured under the IRA insurance limits, but the $50,000 CD and the $75,000 have a combined total of $125,000, which exceeds the $100,000 limit, and therefore $25,000 of Sam’s deposits are not protected. 

Example:  Sam and Mary jointly hold a $100,000 checking account, a $100,000 CD and a $500,000 IRA with one bank.  Under FDIC rules, for joint accounts the account holders are considered to own each asset equally (unless stated otherwise in the bank records), so Sam and Mary’s accounts are fully protected using each of their insurance limits (for FDIC rules, Sam is considered to own $50,000 of the checking account, $50,000 of the CD and $250,000 of the IRA). 

How Does My Revocable Trust Affect FDIC Insurance?

There are two types of trust accounts:  (1) payable-on-death accounts (POD) and (2) living trust accounts.  

POD accounts are set up directly with the banks where the account is held in the owner’s name during the owner’s lifetime, but the owner has designated a beneficiary or beneficiaries of the account upon the owner’s death.  

Living Trust Accounts are accounts held in the name of an owner’s revocable living trust, and the beneficiaries of the account are governed by the owner’s trust document. 

FDIC insurance coverage for revocable trust accounts (which includes both POD and living trust accounts) are different from the general rules discussed above and can provide increased insurance coverage to account owners. 

Insurance coverage for revocable trust accounts is based on who are the beneficiaries of the account.  The FDIC insures the interests of each beneficiary up to $100,000 for each owner if all of the following requirements are met:

• The beneficiary is the owner's spouse, child, grandchild, parent, or sibling. Adopted and stepchildren, grandchildren, parents, and siblings also qualify. In-laws, grandparents, great-grandchildren, cousins, nieces and nephews, friends, organizations (including charities), and trusts do not qualify.
• The account title must indicate the existence of the trust by including a term such as: POD, in trust for, trust, living trust, family trust, or an acronym such as POD or ITF.
• For POD accounts, each beneficiary must be identified by name in the bank's account records.

If any of these requirements are not met, the entire amount in the account, or any portion of the account that does not qualify, would be added to the owner's other single accounts, if any, at the same bank and insured up to $100,000. If the revocable trust account has more than one owner, the FDIC would insure each owner's share as his or her single account.

Example:   Sam has a $300,000 savings account held in the name of his revocable trust.  The beneficiaries of his trust are his three children.   The account is fully FDIC insured up to $300,000 because his 3 children are qualified beneficiaries.

Example:   Sam has a $300,000 savings account held in the name of his revocable trust.  The beneficiary of his trust is a charity.   Only $100,000 is insured because the charity is not a qualified beneficiary. 

Example:   Sam and Mary have a $600,000 savings account held in the name of their revocable trust.  The beneficiaries of their trust are their three children.   The account is fully FDIC insured because the FDIC rules allow $300,000 insurance for Sam (because the 3 children are qualified beneficiaries) and $300,000 insurance for Mary (because the 3 children are qualified beneficiaries). 

This article briefly summarizes some of the basic rules of FDIC insurance and the benefits proper estate planning can provide.  There are many complex rules governing the FDIC rules which may affect your insurance coverage, so it is important to talk with a qualified estate planning attorney to ensure you and your family are properly protected.  If you have any questions about your accounts, please feel free to contact Denae L. Oatey, Esq. at (562) 594-1360.