Older Americans are putting their money…and their trust…in FDIC-insured bank accounts because they want peace of mind about the savings they've worked so hard over the years to accumulate. Here are some things seniors should know and remember about FDIC insurance.
1. The basic insurance limit is $100,000 per depositor and per insured bank. If you or your family have $100,000 or less in all your deposit accounts with the same insured bank, you don't have to worry about your insurance coverage. Your funds are fully insured. Your deposits at separately chartered banks are insured separately, even if the banks are affiliated, ie belonging to the same parent company.
2. You can get coverage for more than $100,000 from an insured bank if you have deposit accounts in different property classes. There are several different categories of ownership, but the most common for consumers are single ownership accounts (for one owner), joint ownership accounts (for two or more people), self-directed retirement accounts (individual retirement accounts and Keogh accounts for which you choose how and where the money is deposited) and revocable trusts (a depository account indicating that the funds will be transferred to one or more named beneficiaries on the death of the owner). Deposits belonging to different property classes are insured separately. This means that a person can have well over $100,000 of FDIC insurance coverage at the same bank if the funds belong to separate ownership classes.
3. A death or divorce in the family may reduce FDIC insurance coverage. Let's say two people have an account and one dies. FDIC rules allow a six-month grace period after a depositor's death to give survivors or executors a chance to restructure accounts. But if you don't act within six months, you run the risk of accounts going over the $100,000 limit.
Example: A husband and wife have a joint account with "right of survivorship", a common provision in joint accounts specifying that if one person dies, the other will own all the money. The account totals $150,000, which is fully insured because there are two owners (giving them up to $200,000 of coverage). But if one of the two co-owners dies and the surviving spouse does not change the account within six months, the $150,000 deposit would automatically be insured to only $100,000 as the surviving spouse's sole ownership account, so than any other account in that category at the bank. Result: $50,000 or more would be over the insurance limit and at risk of loss if the bank failed.
Also be aware that the death or divorce of a beneficiary of certain trust accounts may immediately reduce insurance coverage. There is no six-month grace period in these situations.
4. No depositor has lost a penny of FDIC-insured funds as a result of failure. FDIC insurance only comes into play if an FDIC-insured banking institution fails. And fortunately, bank failures are rare these days. This is largely because all FDIC-insured banking institutions must meet high standards of financial soundness and stability. But if your bank were to fail, FDIC insurance would cover your deposit accounts, dollar for dollar, including principal and accrued interest, up to the insurance limit. If your bank fails and you have deposits above the federal insurance limit of $100,000, you may be able to recover some or, in rare cases, all of your uninsured funds. However, the overwhelming majority of depositors of failed institutions are within the $100,000 insurance limit.
5. FDIC deposit insurance coverage is rock solid. In mid-2005, the FDIC had $48 billion in reserves to protect depositors. Some people say they have been told (usually by marketers of investments competing with bank deposits) that the FDIC does not have the resources to cover depositors' insured funds if an unprecedented number of banks were to go bankrupt. This is false information.
6. The FDIC pays depositors promptly after the failure of an insured bank. Most insurance payments are made within a few days, usually by the next business day after the bank is closed. Don't believe the misinformation being spread by some investment sellers who claim that the FDIC takes years to pay insured depositors.
7. You are responsible for knowing your deposit insurance coverage.
Know the rules, protect your money.
