FDIC insurance is confusing, especially when it comes to entities. Clients often ask about it, especially since the financial crisis of 2008. Here’s a quick breakdown of the current rules affecting common types of deposit accounts:
The Basics: The FDIC insures deposit accounts at most – but not all – banks and savings associations. Account holders can call 1-877-ASK-FDIC if they’re not sure whether their financial institution is covered. FDIC insurance covers checking accounts, savings accounts, money market accounts, CD’s and NOW accounts. It does not cover investments such as mutual funds, annuities, stocks, bonds, and life insurance policies.
Coverage Amounts: The default rule is that a depositor can have up to $250,000 in fully insured funds on deposit at a single insured bank. Different branches of one financial institution are considered the same bank for FDIC purposes. However, a depositor may qualify for more than the default amount of FDIC coverage if he owns accounts in different ownership categories at the same bank.
Single Ownership: An account owned by one person with no co-owners and no beneficiaries is insured for up to $250,000. If the same person owns multiple accounts in the same manner at the same institution, the same $250,000 maximum applies.
Joint Ownership: An account with more than one owner and no beneficiaries is insured for up to $250,000 per owner.
Revocable Trusts: The FDIC recognizes two categories of revocable trust accounts. Informal trust accounts include payable on death (“POD”), in trust for, Totten trust, and testamentary trust accounts. Formal trust accounts are those established pursuant to living trust or family trust documents. Both categories of revocable trust accounts are subject to the same rules, and coverage depends not only on the number of account owners, but also on the number of trust beneficiaries.
For trust accounts with five or fewer beneficiaries, each owner’s share of the account is insured for up to $250,000 for each trust beneficiary – regardless of the beneficiary’s interest under the trust agreement.
For trust accounts with six or more beneficiaries, each owner’s share of the account is generally insured for the total of the beneficiaries’ actual interests in the trust account (not to exceed $250,000 per beneficiary) or $1.25 million, whichever is greater.
Irrevocable Trusts: For irrevocable trust funds, FDIC insurance is tied to the trust beneficiary rather than to the account owner. In general, the FDIC adds together a beneficiary’s shares of all the irrevocable trust funds on deposit by the same settlor at a single bank and insures the beneficiary’s portion of the deposited funds for up to $250,000. However, the exact extent of coverage depends heavily on the terms and conditions of the trust itself.
For a firsthand look at how deposit insurance rules work for different types of accounts, you can use the FDIC’s Electronic Deposit Insurance Estimator (EDIE) tool.
Stephen C. Hartnett, J.D., LL.M. (Tax)
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (800) 846-1555
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