FDIC Insurance on Bank Accounts Expanded - April 2010


1. What does FDIC Insurance cover?

The FDIC (the Federal Deposit Insurance Corporation) insures checking accounts, NOW accounts, savings accounts, money market deposits or certificates of deposit. Both the principal and accrued interest is covered. Stocks, bonds and mutual funds are not covered. U.S. Bonds are not covered, but of course, they are backed by the full faith and credit of the United States Government.

2. How much of my bank account is protected by FDIC Insurance?

The standard insurance amount was increased in 2008 from $100,000 to $250,000, and this will remain in effect through the end of 2013. In 2014, the insurance coverage will revert back to $100,000 for most accounts, except IRAs and certain retirement accounts, which will remain at $250,000. Also, some checking accounts that do not bear interest or certain NOW accounts that can only earn 0.5% interest can have unlimited coverage if the Bank elects to participate. This special rule is scheduled to expire on June 30, 2010.

3. How can I increase my Insurance Protection?

You can go to any number of banks and you will receive additional protection at each bank. However, more importantly, you can receive additional protection at each bank if your accounts are titled properly. Set forth below are some ways to increase the protection.

SINGLE ACCOUNTS - Any account in your name or held for you in a custodial account receives $250,000 protection. If you have multiple different accounts at one bank, such as a money market account, a savings account and a CD, then all of those accounts are totaled together, and you have protection up to a total of $250,000. If you give a person a Power of Attorney or other right to access your account on your behalf, you are still treated as having a single account, which does not increase the insurance coverage. If you name Beneficiaries of your account, such as a payable on death account or a Trust, your coverage will increase. See discussion below.

JOINT ACCOUNTS - A joint account owned by two or more people in whom either party has equal rights to withdraw from the accounts will increase insurance coverage. For example, if two people have a joint account, the coverage on that account at that bank can be up to $500,000. It is presumed that each owner's share is equal unless stated differently. If there is a Beneficiary of the accounts who receives the money when all the co-owners die, then the coverage is determined under the Trust rules described below.

LIVING TRUSTS - There are two separate rules that can increase coverage.

Rule 1 - Applies if there are five (5) or fewer Beneficiaries of the Trust. Insurance coverage is $250,000 multiplied by the number of Beneficiaries of the Trust, even if a particular Beneficiary receives less than $250,000.

Example 1 - Husband sets up a Living Trust for the benefit of his wife and children. The Trust provides that upon his death, his wife is the Beneficiary of the Trust and then upon her death, it goes to the three children. While the husband is alive, the FDIC protection is $1 million dollars. That is determined by multiplying the maximum coverage for each Beneficiary (4 x $250,000). Upon death, that same coverage continues.

Rule 2 - If there are six (6) or more Beneficiaries and more than $1,250,000, then the insurance coverage is the greater of $1,250,000 or the coverage based upon each Beneficiaries interest.

Example 2 - Husband sets up a Trust with $1.5 million dollars, which provides for six (6) Beneficiaries on his death:

a. His wife receives $935,000;

b. His three children each receive 125,000;

c. His friend receives $15,000;

d. Charity receives $175,000.

Under Rule 2, the coverage is limited to the greater of (i) $1,250,000 or (ii) $250,000 for the wife, $125,000 for each child, for a total of $375,000 for the children; $15,000 for the friend and $175,000 for the charity or a total of $815,000. Therefore, the insurance coverage is $1,250,000.

(The explanations published by the FDIC are inconsistent with the regulations in the situation when you have six (6) or more Beneficiaries of the Trust, but less than $1,250,000 in the account. However, based upon the examples published by the FDIC and the preamble to the FDIC regulations, all amounts would be covered whether Beneficiaries received equal amounts or not.)

JOINT TRUSTS - Joint Trusts follow the same rules as above, except that you can double the limits as two (2) separate Trusts.

PAYABLE ON DEATH ACCOUNTS - POD Accounts follow the same rules as a Living Trust. Caution should be taken to make sure that bank records reflect the account is a Payable on Death Account, and the Beneficiary must be identified by name. A Revocable Living Trust does not have to use the names of the Beneficiary, but it can use the a phrase such as "my issue" or other common legal terms as long as the Beneficiaries can be determined.

IRREVOCABLE TRUSTS - If you set up an Irrevocable Trust that becomes irrevocable prior to your death, the rules for coverage are more complicated and less generous. A typical situation might be a Trust holding life insurance or a Trust holding lifetime gifts. Since many Irrevocable Trusts have certain conditions that affect the interest of Beneficiaries or allow a Trustee or Beneficiary the right to invade principal, the FDIC insurance coverage may be limited to $250,000. If you have set up a large Gift Trust or Insurance Trust, it might be advisable to deposit funds into several banks to increase protection.

IRA/ Retirement Plans - IRAs, Roth IRAs, SEP Plans, Simple Plans and 401(k) Plans, in which you can direct how the money is invested are covered up to $250,000.


You can go to the FDIC website at http://www.fidic.gov/ for more information. The website also has a calculator that can be used to calculate your coverage.

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