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Federally Insured Deposits Increased to $250,000

The Emergency Economic Stabilization Act (EESA) of 2008 temporarily increases the federal insurance of savings deposits from $100,000 to $250,000. The increased insurance limits apply to banks insured by the Federal Deposit Insurance Corporation (FDIC) and to credit unions insured by the National Credit Union Administration (NCUA) until December 31, 2009.

The increased insurance limits can be an important consideration for older citizens who have amassed a small fortune over their lifetime and are looking for a safe place to park their savings while the financial markets are in turmoil. Businesses may also benefit from the increase, as the higher limits may make it safer for them to keep enough in one account to meet payroll and other business expenses.

The increase in insured deposits is also hoped to help the economy by restoring confidence in the American banking system. Higher insurance limits may encourage savers to leave larger amounts in the bank, giving those financial institutions much-needed capital to continue lending.

But the fact is that many Americans don't even have $100,000 in a bank account, let alone $250,000. The vast majority of the population probably won't be affected by this change at all - those of us who worry more abut how to save than whether we've reached the maximum insured amount in our bank account.

However, for those of you who do have several hundred thousand dollars in the bank, the higher limits can reduce the need to use multiple financial institutions to ensure protection of all your cash. Understanding how the FDIC and NCUA treat different types of deposits will help you to maximize your deposit insurance coverage.

What kinds of accounts are covered?

FDIC and NCUA-insured deposits include checking and savings or share and share draft accounts, Certificates of Deposit, and money market deposit accounts.

The FDIC and NCUA do not insure investments such as stocks, bonds, mutual funds, annuities, life insurance policies, or municipal securities, even if you bought them at a federally-insured financial institution.

You don't have anything to worry about if you have $250,000 or less in all combined accounts at one federally-insured financial institution. Any savings over $250,000 may still be covered if the accounts are in different ownership categories. If it's not possible to divide your money into different ownership categories, then the next option to ensure that your savings is protected may be to simply put the surplus of $250,000 in another federally-insured financial institution.

The most common types of ownership categories:
Single accounts are those in which one individual has ownership in the accounts. All combined account deposits should not exceed $250,000, including savings, checking, CDs, or other federally-insured deposits. This category does not include retirement accounts or qualifying trusts that are owned by an individual.

Joint accounts provide each co-owner of the account with $250,000 in coverage; up to $500,000 of a couple's deposits will be covered in a joint account. This includes combined deposits from checking, savings, CDs, and other federally-insured deposits. This category does not include jointly owned qualifying trusts.

Certain retirement accounts are covered by federal insurance. This includes Individual Retirement Accounts (IRAs) - Roth IRAs, traditional IRAs, SEP IRAs, and SIMPLE IRAs, and Section 457 deferred compensation plan accounts, self-directed defined compensation plan accounts, and self-directed Keogh plans (or H.R. 10 plans).

If you have different types of retirement accounts, the balances from each will be added together for a total coverage amount of $250,000 under the FDIC's rules. The NCUA covers $250,000 to combined IRAs, but keeps the Keogh limit of $250,000 separate from the IRA limit of $250,000. Please note that the FDIC and NCUA permanently increased retirement account insurance limits to $250,000 on April 1, 2006, so these limits will not decrease at the end of next year like they will with other types of accounts.

Revocable trust accounts are held as either payable-on-death (POD) accounts or living trust accounts. POD accounts are the most common form of revocable trust, and pays the named beneficiaries upon the owner's death. Each beneficiary's portion of the POD account is covered up to $250,000 from each owner of the POD account. For example, A POD account with one owner and three designated beneficiaries will be insured up to $750,000. If the POD account is jointly owned by a husband and wife, and each spouse names their three children as designated beneficiaries, then the account will be covered up to $1,500,000 - $250,000 from each owner to each beneficiary.

If the account owner has both living trust and POD accounts that name the same beneficiaries at the same financial institution, then the $250,000 per-beneficiary coverage amount will apply for the combined accounts. There are many complicated insurance rules to consider when determining coverage for living trusts, so contact the FDIC at 1-877-275-3342 if you need help with your living trust situation. Also, the NCUA has special rules regarding living trust insurance coverage amounts, so talk to someone at your credit union if you need more information about your particular situation.

You can have much more than $250,000 insured if you strategically set up your accounts.
For example, let's look at how a married couple with two children can keep $2.5 million, all insured by the federal government, in the same bank:
Each has $250,000 in individual accounts for a total of $500,000.
Each has $250,000 in a joint account for a total of $500,000.
Each has $250,000 in an IRA for a total of $500,000.
Jointly hold POD account for their two children, each spouse designating $250,000 to each child, for a total of $1,000,000.

So, if you've built up a nice nest egg, there are many options in keeping your money safe in one federally-insured financial institution. Just don't forget that the expanded deposit insurance ends December 31, 2009, and have another plan for your money by that date.

Federal Deposit Insurance Corporation
National Credit Union Administration
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Thursday, 09 July 2020

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