FDIC insurance coverage, limits, rules : Bad Credit Advisor

FDIC insurance coverage, limits, rules

The Federal Deposit Insurance Corporation or FDIC insurance coverage limits have been increased from $100,000 to $250,000. Certain rules apply and we will show you how to take advantage of those later, but in general, deposits at FDIC insured institutions have coverage up to at least $250,000 per depositor until December 31, 2013. On January 1, 2014, FDIC deposit insurance for all deposit accounts, except for certain retirement accounts, will return to at least $100,000 per depositor. Before we go further, it is wise to note that deposits in credit unions are very similarly insured by National Credit Union Administration or NCUA, which is the independent federal agency that charters and supervises federal credit unions throughout the United States and its territories. NCUA insures accounts in credit unions through the National Credit Union Share Insurance Fund.

Your bank or credit union must display official insurance signs if your deposits are insured by FDIC or NCUA. But it's all academic, we shall see how certain rules of FDIC insurance coverage can be used to maximize the limits of insured deposit.

When talking about FDIC insurance limits and coverage, one has to understand that different rules apply to different accounts. And it is very important to understand that you can set up your accounts to maximize the coverage. Believe me, your average teller or even personal banker will likely not know all the details you need to know in times when banks are still being closed by the government left and right.

Single ownership accounts
These hold funds you own individually in just your name. Single ownership accounts include savings accounts, checking accounts, and share certificates. The maximum insurance coverage for single accounts account is $250,000. Either FDIC or NCUA adds together all single accounts and insures them up to $250,000.

Joint ownership accounts
Joint accounts work better when it comes to FDIC insurance coverage. Such accounts are owned by 2 or more individuals and FDIC insurance limits are $250,000 for each owner.

FDIC Multiple joint account coverage
Important to understand as there is some confusion regarding this situation. If wife Jane and husband Dan, have a joint account in a bank with a balance of $500,000, and Dan also has a joint account, in the same bank with his brother Bill with a balance of $100,000, then $50,000 are left uninsured because Dan exceeds his limit. Essentially, Dan and Bill can have up to $300,000 on their joint account and still, only $50,000 will be left uninsured.

Revocable trust account
The most common type of revocable trust account is the payable on death account or POD. Such an account shows the intent of the account owner that upon his or her death, the funds will pass to one or more named beneficiaries. Typically, this intent is shown in the titling of the account by using words such as - in trust for or payable on death to. And POD accounts allow you to increase FDIC insurance limits quite drastically, with coverage of up to $250,000 per each beneficiary. There are few rules you must be aware of,
- naming the same beneficiary on more than one POD account does not increase insurance coverage
- a beneficiary can be any natural person as well as charitable and nonprofit organizations recognized as tax exempt by the IRS
- if a designated beneficiary does not qualify, the funds in the account will be insured as the owner individual account and added with all of his other individual accounts and insured up to $250,000
- FDIC insurance limits on POD accounts that name more than 5 beneficiaries and have a balance greater than $1,250,000 are treated differently for insurance purposes

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Two or more owners can set up a Joint POD account. The basic rules for calculating the insurance coverage on these accounts are summed up by this simple formula, Number of Owners x Number of Qualifying Beneficiaries x $250,000

POD accounts with more than 5 beneficiaries and a balance greater than $1,250,000.
Such accounts are treated differently than other POD accounts for FDIC insurance purposes. The coverage limits on these types of POD accounts depend on the amount of funds attributed to each beneficiary.

Listing the same beneficiary on more than one POD accounts does not increase FDIC insurance coverage limits. It is still only $250,000 for the same beneficiary.

Rules and limits for retirement accounts
- IRA, Roth IRA and Keogh accounts are insured to $250,000
- these accounts are insured separately from other accounts a member maintains in the same bank
- Keogh accounts are separately insured from IRA accounts
- Traditional IRA accounts and Roth IRA accounts are added together and insured up to $250,000

How to maximize share insurance coverage
This is how a family of four - mother Jane, father Tom, and two children Bobby and Charlotte can tweak their finances to get the most from FDIC insurance.