Maximizing FDIC Coverage of Bank Deposits

Posted on 08.19.15

Maximizing FDIC Coverage of Bank Deposits

The Federal Deposit Insurance Corporation (FDIC) was formed in 1933 to provide deposit insurance coverage to depositors of insured banks.  Covered institutions must display an official sign at each teller station.

All types of deposits received by a financial institution in its usual course of business are insured.  This would include savings accounts, checking accounts, Certificates of Deposit (CDs), cashier’s checks and money orders.  Certified checks, letters of credit and traveler’s checks from an insured institution are also covered by FDIC insurance when issued in exchange for money or its equivalent or for a charge against a deposit account.

Any person (US citizen or not) or entity can have FDIC coverage at an insured bank.  However, only deposits that are payable in the US are covered.  Deposits only payable overseas are not insured.

Securities, mutual funds, and similar investments, even if purchased through a bank, are not covered, nor are safe deposit boxes or their contents.  Similarly, treasury securities purchased by an insured institution on a customer’s behalf are not insured, but these investments are backed by the full faith and credit of the US government.

A depositor is normally insured up to $250,000 in each insured financial institution.  Accrued interest is included when calculating the insurance coverage.  Deposits maintained in different categories of legal ownership are separately insured.  Accordingly, an individual can have more than $250,000 of insurance coverage in a single institution provided the funds are owned and deposited indifferent ownership categories.

Deposits held in one insured bank are insured separately from any deposits held in another separately insured bank.  This contrasts funds deposited in separate branches of the same insured bank which are aggregated for purposes of determining insurance coverage.

Up to $250,000 in deposit insurance is provided for the deposits a consumer makes at the same insured institution in a variety of retirement accounts, including traditional IRAs, ROTH IRAs, SEP IRAs and SIMPLE plans.

FDIC coverage is not determined on a per-account basis, but on an ownership basis.  This means that if a bank customer, who has multiple deposits, may qualify for more than $250,000 in insurance coverage if the customer’s accounts are deposited into different ownership categories and the requirements for each category are met.  Thus, increasing FCIC coverage may be as simple as retitling accounts so they fall into different ownership categories.  For example, an individual with three individual accounts, each worth $100,000 for a total of $300,000 would have only $250,000 of coverage.  However, a joint account worth $500,000 would be fully covered ($250,000 per person).  Please be careful, however, when retitiling accounts that proper consideration is given to the gift tax rules or contributions to/ distributions from legal entities.

Questions?  Contact your Keiter advisor.  information@keitercpa.com | 804.747.0000

 

Source: Thomson Reuters Checkpoint | Practitioners Tax Action Bulletins® | Five-Minute Tax Briefing® | No. 2015-14 | July 28, 2015