Given the collapses of Silicon Valley Bank and Signature Bank, the topic of FDIC insurance has come up more lately than it has at any point since the financial crisis of 2008. We do not write this piece out of any sort of fear. We do not have concerns about the strength of the overall banking system. And given the precedent the Fed set in guaranteeing all depositors of the two recently failed banks, there is an argument to be made that any subsequent failures would be met with a similar guarantee. This piece was written for informative purposes for those cash heavy depositors who feel safer relying on the FDIC coverage rather than possible further Fed intervention.
Most are familiar with the $250,000 limit that is commonly cited in the media. However, not all are as familiar with the rules that allow depositors to have well beyond the $250,000 coverage amount at a single bank. How much additional coverage that is available depends on one’s circumstances and account titling. FDIC coverage is not relevant within your investment account; this only pertains to banking accounts.
Consider the following examples:
Example 1 - An individual depositor keeps $250,000 in ABC Bank across a few different checking and savings accounts, all individually held with no beneficiaries. So long as the tally of those accounts does not exceed $250,000, her deposits are fully insured.
Example 2 - Assume the individual depositor in Example 1 is married. In addition to her accounts, her spouse has a $250,000 CD and they also share a jointly titled money market account worth $500,000. Her individual accounts remain fully insured. So too is her spouse’s $250,000 since each depositor has $250,000 of coverage available. The $500,000 in the joint money market is also fully insured as the joint titling affords them each an additional $250,000 worth of coverage. The totality of their $1,000,000 is fully insured at ABC Bank.
Utilizing trusts as part of one’s FDIC planning can further expand coverage amounts at an institution. Coverage for trust accounts is governed differently than individual accounts. For individual accounts, coverage is dictated by the owner of the account. For trust accounts, coverage is dictated by the beneficiaries of the account. Each unique, eligible beneficiary is insurable under FDIC rules. To be eligible, the beneficiary must be a human being, a charitable organization, or a non-profit entity.
Example 3 – Building on the previous example, assume that our married couple have three children. The depositor has an additional $1,000,000 in a savings account titled in the name of her trust. The trust names her spouse and the three children as beneficiaries. By having four beneficiaries, the full $1,000,000 is also FDIC insured bringing the family total FDIC coverage at ABC Bank to $2,000,000.
These basic examples should make it clear that it is possible to obtain significant FDIC insurance without the need to have accounts across a multitude of institutions. Keeping track of those accounts and their login accesses would be an unnecessary chore.
If you are interested in determining how much coverage you have across your bank accounts, the FDIC has a fairly easy to use calculator on its website: https://edie.fdic.gov/calculator.html
Please note that this article was not intended to cover every permutation of coverage based on ownership, beneficiary designations, etc. The guide on the FDIC’s website for various ownership structures is nearly 100 pages! It was only meant to address the most commonly seen circumstances within our clientele.