FDIC Deposit Insurance can be confusing – are you covered?
Customers of a U.S. chartered bank have the privilege of insured bank deposits in the case of a bank failure. This insurance coverage is provided by premiums paid by the deposit institution. Since the inception of the FDIC in 1934, there has not been any money lost by a depositor in a failed bank transaction. All principal and accrued interest in a failed bank is covered up to the current insurance limit of $250,000. The deposit insurance is a comfort to customers, but trying to determine the amount of coverage, with a multitude of account ownership styles, can be a confusing and difficult task.
An easy way to look at insurance coverage is to review what products are “not” covered. FDIC does not cover stocks, bonds, mutual funds, life insurance policies or annuities. Even if these products were purchased at an insured deposit institution, FDIC insurance coverage does not go into effect. In addition, the FDIC does not cover the contents of safe deposit boxes. While government bonds, bills and notes may have the full faith and credit of the US Government, they do not have deposit insurance coverage from the FDIC. Additionally, accounts housed in Trust departments are considered safe harbor in the case of bank failure and are not subject to FDIC insurance.
Due to deposit products being offered by chartered banks in many shapes, sizes and amounts, the FDIC has specific categories they will focus on in a bank failure situation. There are eight account “ownership” categories that help to determine the exact amount of deposit insurance a customer may have. Simply rearranging the name of two spouses or a child is not sufficient. The “ownership” categories are 1) single account owner, 2) joint account owner, 3) selected retirement accounts, 4) Revocable Trusts, 5) Irrevocable Trusts, 6) Employee benefit plan accounts, 7) Corp/Partnership accounts and 8) Govt. accounts. Each of these categories have extended detail and characteristics that can help you determine your true FDIC insurance coverage. Examples of a family of four with multiple account ownership categories can result in deposit coverage exceeding $3,000,000. If you understand each of the ownership categories, you can maximize your insurance coverage and alleviate any concerns you may have about account structure and risk of bank failure. We recommend seeing your personal banker or bank representative and utilizing Edie the Estimator at FDIC.gov/Edie to get answers to your specific questions regarding FDIC insurance.