We have all seen the phrase “FDIC Insured” at our bank’s drive through, the bank teller’s booth and plastered on our bank’s website. But have you ever taken the time to understand what FDIC Insured means or how it can help you if your bank fails? This Blog will discuss FDIC Insurance and how much you are really protected against the failure of your bank.
The FDIC (Federal Deposit Insurance Corporation) is an independent agency of the United States Government that insures you against the loss of your insured deposits (up to $250,000.00) if an insured bank or savings association fails. You don’t have to apply for FDIC insurance; you get it automatically if you open an account at an FDIC insured institution. So why aren’t all of your funds automatically protected?
Although FDIC insurance covers your deposits at a FDIC insured institution dollar for dollar, principal plus interest accrued or due to you through the day your institution fails, it insures up to $250,000.00 per depositor, per FDIC insured institution, per ownership category.
So what are these ownership categories? They are your typical deposit accounts. Find out more about ownership categories at: https://www.fdic.gov/deposit/covered/categories.html
Of course, single accounts are automatically protected. However, joint accounts are also provided $250,000.00 coverage per co-owner.
Have a retirement account with an FDIC Insured institution? If you have the right to direct how that retirement money is being invested, then you will receive the FDIC Insurance protection for that account up to $250,000.00.
What about that revocable trust you set up, is it covered by the FDIC? It is covered up to $250,000.00 for each unique beneficiary that is designated. Does this apply to “living Trusts and informal ITF/POD accounts? Yes, it does.
What if you have an account held in connection with an irrevocable trust? Then you will have FDIC insurance coverage up to $250,000.00 for the contingent interests of that trust, regardless of the number of beneficiaries designated. What about non-contingent interests of a beneficiary you may ask? Well, the non-contingent interests are added together and insured up to $250,000.00.
Do you have a corporate, partnership, or unincorporated association account? Then you will have $250,000.00 coverage per corporation, partnership or unincorporated association account.
Also included are employee benefit plan accounts as long as they are not self-directed. The FDIC insures these accounts up to $250,000.00 for the non-contingent interest of each participant.
Are you an official custodian for a government account? Then there is coverage up to $250,000.00 per official custodian.
So you may have coverage for multiple accounts at the same FDIC insured institution depending on different ownership categories. Accounts held in separate ownership categories will have coverage even if you have multiple accounts at the same FDIC insured institution. So, for example, you could have a single account, joint account and corporate account at the same institution, while still maintaining FDIC insurance coverage up to $250,000.00 for each account. As long each account is in a separate ownership category. You could not, however, have two single accounts and still have FDIC coverage for both single accounts. Only one of the accounts would have FDIC insurance.
Here’s a link that will provide some examples on how FDIC insures your deposits: https://www.fdic.gov/deposit/deposits/brochures/your_insured_deposits-english.html
Not all financial products are covered, however. The FDIC only covers deposit products. This is usually the traditional financial products like savings and checking accounts, money market deposit accounts and certificates of deposit. Investment products, including mutual funds, annuities, life insurance products, and stocks or bonds are not covered.
So exactly how much are you insured by the full faith and credit of the U.S. Government? Well, review your accounts and find out! Because there is no chance your bank will ever fail, right?
Thanks to Milos Bjedov of PurePoint Financial, 1 N LaGrange Rd, La Grange, IL 60525 (630-490-0006) for providing the inspiration, and helpful information, for this Blog!