Does the FDIC Cover Your Bank Deposits?
If you’re like most people, the recent news of bank collapses, such as Silicon Valley Bank, may have left you anxious about the security of your deposits. Fortunately, the Federal Deposit Insurance Corporation (FDIC) offers insurance to protect your deposits if a bank fails. This article explores what FDIC insurance is, the insurance limits, and what to do if you have more than the limit in an account.
What Does FDIC Insurance Cover?
FDIC insurance generally covers money held in traditional deposit accounts, including:
Checking accounts
Savings accounts
Money market deposit accounts
Certificates of deposit (CDs)
Negotiable Order of Withdrawal (NOW accounts)
It also covers bank cashier’s checks and money orders and prepaid cards if FDIC requirements have been met.
What Are the FDIC Coverage Limits?
FDIC insurance limits are set by law. As of 2021, the standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category. The most common ownership categories are single accounts, joint accounts, trust accounts, certain retirement accounts (e.g., IRAs), employee benefit plan accounts, and corporate accounts.
For example, if you have a single account with $250,000 or less in it, your deposits are fully insured. If you have $300,000 in a single account, $250,000 will be guaranteed, and the remaining $50,000 will not be.
Similarly, if you have $500,000 in a joint account with your spouse, your funds will be insured (i.e., $250,000 per co-owner, totaling $500,000). If you have more than that, the excess amount will not be protected.
What Is the Coverage for Living Trusts?
The FDIC provides deposit insurance coverage for deposit accounts titled in the name of a living trust. The coverage limits for accounts titled as living trusts depend on the type of living trust and the number of beneficiaries.
For revocable living trusts, each beneficiary is insured up to $250,000 per ownership category. The maximum insurance coverage for a revocable living trust with multiple beneficiaries is based on the number of beneficiaries and the number of ownership categories. The FDIC insures up to $250,000 per beneficiary, up to 5, per ownership category. This number will change in 2024.
For irrevocable living trusts, the maximum insurance coverage is up to $250,000 for the entire trust, regardless of the number of beneficiaries.
It's important to note that these insurance limits are per depositor, per insured bank, and per ownership category. Therefore, if you have multiple accounts titled as living trusts with different beneficiaries, each account may be eligible for FDIC insurance coverage up to $250,000 per beneficiary at each bank where the account is held.
It's always a good idea to consult with a financial advisor or attorney to ensure that your living trust accounts are properly structured for maximum FDIC insurance coverage.
How Do You Find Out If the FDIC Covers a Bank?
All FDIC-insured banks must display an official FDIC sign at each teller window and public area. You can also call your bank to ask or the FDIC at (877) 275-3342. You check online using the FDIC’s BankFind Suite tool, which allows you to search for FDIC-insured institutions by name, location, or other criteria.
It’s worth noting that credit unions have different protection under the National Credit Union Share Insurance Fund (NCUSIF), which is administered by the National Credit Union Administration (NCUA). Like FDIC insurance, the amount is $250,000 per depositor, per institution, per ownership category.
What Do You Do If Your Account Exceeds FDIC Limits?
You have a couple of potential solutions if you have more than the FDIC insurance limit.
For one, you can increase your coverage at your bank through various FDIC-insured ownership categories. For example, if you have $500,000 in a single account, you could open a second account in a different ownership category, such as a joint account with your spouse. This would bring your total insured deposits to $500,000 ($250,000 for the single account and $250,000 as co-owner of the joint account).
You might also spread your money across multiple banks. For example, if you have $500,000, you can deposit $250,000 at Bank A and $250,000 at Bank B.
In future articles, we will cover other ways to avoid exceeding FDIC insurance limits.
Be Proactive
While bank closures may cause some anxiety, there are steps you can take to protect your deposits. By checking that your bank is FDIC insured and ensuring your account balances fall within FDIC coverage limits, you can have peace of mind knowing that your hard-earned money is safe. Our fiduciary financial planning firm covers this step as part of our comprehensive financial planning for clients.
We offer a complimentary 15-minute call to discuss your financial situation and concerns and share how we may be able to help.
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