FDIC Insurance – Have You Maximized Your Coverage?

March 19, 2019

During the Great Depression, 9,000 banks failed and that gave rise to the Federal Deposit Insurance Corporation, or FDIC, which served to instill confidence in the banking system.  On January 1, 1934, the first deposits were insured with a limit of $2,500.  FDIC insurance is backed by the full faith and credit of the US government.  How well do you know FDIC coverage?

Insured Deposits

FDIC-insured deposits include checking, money market and savings accounts.  Also, included are certificates of deposit, cashier’s checks, money orders and other official items issued by a bank.  There is no coverage for the contents of safe deposit boxes, losses due to theft or fraud at the institution, including cybercrimes, insurance and annuity products, stocks, bonds and mutual funds and investments backed by the U.S. government, such as Treasury securities and Savings Bonds.

Insurance Amount

The maximum amount of deposit insurance is $250,000.  When determining coverage limits, it is important to analyze bank accounts in the following order: 1.) per bank 2.) per depositor 3.) per ownership category.

Per Bank

Accounts at each bank charter are insured separately.  Where a depositor has accounts at different branches of the same bank, such are not separately insured.  The key consideration in receiving additional insurance coverage is separate charters.

Per Depositor

The $250,000 insurance limit applies to total deposits at a bank a depositor has in the “same capacity and same right.”  Accounts with different “rights and capacities” receive separate insurance coverage.  Note the following:

  • Individual Account With Power of Attorney – If an individual account has a named agent under a power of attorney, the account will be not be treated as a joint account.
  • Sole Proprietorship Accounts – Sole proprietorship accounts in the name of the business are treated as the individual account of the sole proprietor and are added to any other individual accounts of that person.
  • UTMA Accounts – For funds in a Uniform Transfers to Minors Act (UTMA) account, the minor is deemed to be the depositor.

Per Ownership Category

Ownership categories are analyzed to further determine insurance coverage.  Note the following insurance limits:

  • Single Ownership – owned by one person.  $250,000 per person.
  • Certain Retirement Accounts (including IRAs) – $250,000 per owner.
  • Revocable Trust and Payable-on-death Accounts- $250,000 per unique beneficiary.  All funds held in both living trust accounts and payable-on-death accounts, naming the same beneficiaries, are aggregated for insurance purposes.  Note that limits apply to accounts that name more than five different beneficiaries and whose aggregate balance is more than five times the $250,000 limit, or $1,250,000.
  •  Corporations, Partnerships, LLCs – $250,000 per entity.
  • Irrevocable Trust – $250,000 for interest of each unique beneficiary.
  • Employee Benefit Plans – $250,000 for interest of each plan participant.

Joint Accounts – $250,000 per co-owner. Each co-owner’s interest in all joint accounts are added together and insured up to the $250,000 limit.  For example, if:

    • A&B have a joint account of $150,000;
    • A&C have a joint account of $200,000; and
    • A, B & C have a joint of $375,000

“A” is deemed to have account interests totaling $300,000 (75,000 + 100,000 + 125,000).  The insured amount is $250,000 and the uninsured amount equals $50,000.

Key considerations

In summary, when analyzing the amount of insurance coverage available, the following steps should be taken:

  • First – Identify separately-chartered banks
  • Second – Separate accounts into different account categories
  • Third – Determine account registrations in each category and aggregate those with “same capacity and same right”
  • Last – Apply insurance limit

Pay close attention to FDIC rules to maximize insurance coverage and provide the security afforded by the FDIC.

Michael C. Foltz, JD, CPA, CFP® is a BDF founding principal and founder of our Business Owner Team with an extensive background in law, tax and estate planning.  Mike shares his estate planning expertise by following the ever-changing federal and state estate tax laws and preparing education summaries for clients and team members.  Recognized by Chicago magazine as a Five Star Wealth Manager, Mike has given numerous presentations on estate planning to BDF clients and professional organizations such as the Exit Planning Institute and Illinois State Bar Association. Publications such as Inc. magazine and the Wall Street Journal have featured his insights into estate planning, and he has contributed to an estate-planning publication for Commerce Clearing House.