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How does the recent increase in FDIC insurance affect my accounts?

Getting the most deposit insurance coverage from their financial institution has always been something that most people would like to do, but few understand exactly how to go about it. Basically, it depends on how you structure your accounts.

Single Accounts

Single Ownership accounts are accounts that are owned by one individual. All single ownership accounts for one individual are added up and coverage is provided up to $100,000.

Example: John has $5,000 in his savings account, $100,000 in his CD, and $20,000 in his checking account for a total of $125,000. He has $25,000 that is not insured.

Joint Accounts

Joint accounts are accounts that are owned by two or more people (entities such as corporations, trusts, estates are not eligible for joint account coverage). All the co-owners must have equal rights to withdraw funds on their one signature and they each must sign the signature card.

The balance in a joint account can exceed $100,000 and be fully insured if each owner's share of all joint accounts at the same financial institution does not exceed $100,000. For example, a husband and wife could have up to $200,000 in one or more joint accounts at the same financial institution and the deposits would be fully insured. Rearranging the names does not increase coverage nor does changing the "or" to "and" or "and/or." Using different social security numbers on multiple joint accounts will not increase the coverage.

Example: Mary and John have a joint account with a balance of $25,000, John or Mary have an account with a balance of $100,000, Mary or John or Robert have an account with a balance of $150,000.

Mary's ownership interest in all three accounts totals $112,500 ($12,500 in the first account listed, $50,000 in the second account listed, and $50,000 in the third account), John's total interest in the three accounts is the same as Mary, $112,500, Robert only has an interest in one of the accounts and his ownership interest is $50,000. Mary and John each have $12,500 that is uninsured. All of Robert's funds are insured.

Revocable Trusts

Revocable trust accounts are accounts that show an intention that the funds will belong to one or more named beneficiaries upon the death of the owner. Informal revocable trust accounts are created when the account owner signs an agreement, usually part of the bank's signature card, that indicates their intention that the funds are payable to one or more beneficiaries upon the owner's death. These are usually called "payable on death," "totten trust" or "in trust for" accounts.

Payable on Death (POD) accounts are insured up to $100,000 per owner for each beneficiary if all of the following requirements are met:

1. The account title must include commonly accepted terms such as "payable on death" "in trust for" or "as trustee for";
2. The beneficiaries must be identified by name in the deposit account records;
3. The beneficiaries must be either a spouse, child, grandchild, parent or sibling of the owner. Adopted and step children, grandchildren, parents and siblings also qualify. Others including in-laws, cousins, nieces, nephews, friends, etc. do not qualify.

If any of the requirements are not met the account is not insured under the revocable trust category. The account would then be added to the owners other single accounts at the same institution.

Example: John has an individual account POD to Mary for $100,000, Mary has an individual account POD to john for $100,000, John and Mary have a joint ownership account POD to their 3 children for $600,000, the amount of insurance coverage that they have under this scenario is $800,000. All of the funds are insured.

Self-directed retirement accounts such as traditional and Roth IRAs and SEP (Simplified Employee benefit Plans) are added together and insured separately from other types of accounts owned at the financial institution.

One major point to remember is that FDIC insurance coverage is based on the concept of ownership rights and capacities. Deposits that a person or entity maintains in different ownership rights and capacities at one bank are separately insured up to the insurance limit. Deposits that a person or entity maintains in the same ownership rights and capacities are added together and insured up to the insurance limit.

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