personal finances

FDIC insurance and you

After IndyMac Bank was shut down on Friday, I’ve heard and read a lot of misinformation about FDIC insurance. Everyone means well but nobody seems to want to spend the time getting their info right. The most basic premise behind FDIC insurance is that you’re insured for up to $100,000 per insured bank. There are circumstances in which individuals can be insured for over $100,000, and if you have that much money in the bank, you owe it to yourself to know the FDIC rules, especially if you’re panicking over IndyMac’s failure.

Here’s my attempt at flowcharting how FDIC insurance works. This is a simplication of the most common FDIC rules. If you have any questions or doubts about any of this information, you should contact the FDIC.

Everything below applies to all your accounts at a single FDIC-insured bank.
Case 1: Certain “self-directed” retirement accounts are insured for up to $250,000! Yes, that’s $250,000! For non-retirement accounts, keep going. The following cases apply only to non-retirement accounts.
Remember: Insured retirement accounts are insured seperately from non-retirement accounts! So if you have both retirement and non-retirement accounts at the same bank, you may be insured for up to $350,000 ($250,000 + $100,000) or possibly more!

Case 2: Are there any beneficiaries on any of your accounts? Are any of your accounts joint accounts?
    If you can answer “no” to all three both questions, then your situation is fairly simple: you are insured for up to $100,000 total regardless of the number of accounts you have at the specific bank. e.g. if you have a checking account and a savings account, you’re covered for a combined total of $100,000. This is the most basic instance of FDIC insurance that most people are aware of.

Case 3: If you have a joint account(s) with no beneficiaries, each co-owner’s share(s) is insured for up to $100,000 per person. In other words, add up the totals of all the accounts you jointly own, regardless of who the other owners are, and divide the total in half. That’s your “share.” As long as your “share” is under $100,000, you’re insured. Any part of the share over $100,000 is not insured.

Case 4: Once you have beneficiaries and/or “revocable trust accounts,” things get a little more complicated and the limits may increase. In essence, “qualified beneficiaries,” namely beneficiaries that are a spouse, or child, grandchild, parent, or sibling who are blood-related to you (in-laws do not count for purposes of FDIC insurance) are each insured for up to $100,000 per account owner!
    The simpliest way to illustrate this is with examples.
    Example 1: individual non-retirement accounts are insured for a total $100,000 per qualified beneficiary. So if you have 2 children as your beneficiary, that account (or those accounts) is insured for up to $200,000 total ($100,000 per beneficiary). If you have 3 qualified beneficiaries, the account(s) is/are insured for up to $300,000 total!
    Example 2: joint non-retirement accounts are insured for a total $100,000 per qualified beneficiary per account owner. So if you and your spouse have 1 child as your beneficiary, your accounts are insured up to $200,000 ($100,000 for the 1 child, x 2 parents). Having two qualified beneficiaries increased the insured amount to up to $400,000 ($100,000 x 2 beneficiaries x 2 parents)!

Now there are more details and circumstances that will affect the information above. Again, I strongly urge you to read up on FDIC insurance on their web site. There’s also a very useful calculator to help you understand your specific situation. I urge everyone to find out the facts. Don’t be misled by people who don’t know what they’re talking about! I’ve even talked to bank employees who are misinformed. This is your money we’re talking about so it’s up to you to learn the facts!

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