FDIC Insurance Coverage and Limits for Your Bank Accounts
November 30, 2008
FDIC insurance will cover the money you have deposited in an FDIC-insured bank or financial institution up to a certain limit in the event the cash in your bank account is no longer available from the bank. It’s important to be aware of the maxium amount that’s covered by FDIC insurance so that you don’t lose your hard earned money if your bank goes under.
What is the FDIC?
Here’s a description of the Federal Deposit Insurance Corporation from the FDIC website:
“The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the United States government that protects against the loss of insured deposits if an FDIC-insured bank or savings association fails. FDIC deposit insurance is backed by the full faith and credit of the United States government. Since the FDIC was established, no depositor has ever lost a single penny of FDIC-insured funds.
FDIC insurance covers funds in deposit accounts, including checking and savings accounts, money market deposit accounts and certificates of deposit (CDs). FDIC insurance does not, however, cover other financial products and services that insured banks may offer, such as stocks, bonds, mutual fund shares, life insurance policies, annuities or municipal securities.”
Bank Closings
According to FDIC data released in late August the number of troubled U.S. banks jumped to 117 — the highest level in about five years — during the second quarter, up from 90 in the prior quarter. Bank profits plunged 86 percent during that quarter, the FDIC said. By August, 10 U.S. banks had failed. Many of these failed banks were sunk by failed mortgage loans. Third-quarter data is expected by year-end.
Let’s take a look at the federal insurance limits on some of the accounts you might have:
FDIC Insurance Coverage
To help manage the financial crisis the FDIC has raised the limit to $250,000 for all FDIC insured accounts through January 1, 2010.
Non Retirement Accounts
For typical savings and checking accounts the Federal Deposit Insurance Corp. or the National Credit Union Administration limit will return to $100,000 in 2010. For certain retirement accounts, such as bank-issued individual retirement accounts (IRAs), the limit is will remain where it is now – individual accounts are federally insured up to $250,000 per institution, a limit it raised from $100,000 in 2006.
Retirement Accounts
The $250,000 limit applies to traditional and Roth IRAs, Simplified Employee Pension (SEP) IRAs and savings incentive match plans for employees (SIMPLE) IRAs that are held within these institutions by employers as well as individuals. Self-directed defined contribution plans (including Keogh plans and 401(k) plans) are also included under this limit.
Under the FDIC/NCUA rules, all of an individual’s retirement accounts at the same insured institution are added together and insured up to $250,000. It’s also important to know that these retirement account insurance limits are separate from any other deposits the individual has at the same institution.
Trust Accounts
Certain revocable trust accounts may also be entitled to FDIC insurance coverage for up to $250,000 for each qualifying beneficiary properly named by the trust account owner. Under revocable trust accounts, insurable categories include: payable-on-death (POD) accounts, which are also known as testamentary or Totten Trust accounts; and living trusts. It’s important to note the following when determining whether such accounts will be insured:
• The owner’s spouse, child, grandchild, parent, or sibling as well as adopted children and stepchildren, grandchildren, parents, and siblings also qualify for insurance coverage. In-laws, grandparents, great-grandchildren, cousins, nieces and nephews, friends, organizations (including charities), and trusts don’t.
• The account title must indicate the existence of the trust relationship by including a term such as payable on death (or the acronym POD), in trust for (or the acronym ITF) trust, living trust or family trust.
• For POD accounts, each beneficiary must be identified by name in the bank’s account records.
Protecting Your Money
So what happens if you find the amount you have at any bank for your retirement accounts exceeds the $250,000 limit?
Retirement Accounts
You might check with your financial professional before moving retirement assets from one institution to another since this may require certain procedures to avoid owing income tax on that money or withdrawal penalties.
While you can withdraw funds and transfer the money to a new institution within the legal rollover window of 60 days, you can do this only once from the originating IRA in a 12-month period, so make sure you do all the transferring you plan to do at the same time. If you are younger than 59 ½ years of age, you’ll risk owing income tax plus a 10 percent penalty on a subsequent withdrawal.
Non Retirement Accounts
You can move the necessary amount of money out of non-retirement accounts into other banks to reduce your total deposit at any one bank. One option to consider is spreading your money between FDIC insured high yield savings accounts such as HSBC Advance, WT Direct, ING Direct, or FNBO Direct.
Another method the FPA suggests looking into are brokered certificates of deposit; buying multiple CDs at once through a brokerage firm can provide a speedy option to spread out money at different institutions with full FDIC protection.
This article on fdic insurance coverage and limits is produced in association with the Financial Planning Association (FPA), the leadership and advocacy organization connecting those who provide, support and benefit from professional financial planning.
if my wife and i deposit 500,000 in a fdic bank and we have a separate joint checking acct as well are they both insured up to 500,000??