FDIC Insurance Coverage

When the banking industry experiences turbulent times, it's comforting to know that the Federal Deposit Insurance Corporation, or FDIC, is providing depositors with protection against the loss of their money. Even more comforting is the fact this insurance coverage is backed by the United States government.

In this article, we're going to review the insurance limits established for deposits held with FDIC insured banks.  As part of that discussion, we'll run through the rules that apply to single accounts, joint accounts, retirement funds, as well as deposits of small corporations.  But first, we'll start with a brief history of the FDIC itself.

Federal Deposit Insurance Corporation

The FDIC was created by the Glass-Steagall Act in June 1933.  The act gave this newly-established agency the power to oversee the commercial banking industry.  The system was launched following the bank panics of 1933, and the thousands of bank closings that followed.

The original limit on deposit insurance stood at $2,500 back in 1933.  Over time, the limit has increased as demonstrated in the table below:

FDIC Insurance Limits

Year Limit
1935 $5,000
1950 $10,000
1966 $15,000
1969 $20,000
1974 $40,000
1980 $100,000
2008 $250,000

As indicated in the above table, the system had gone 28 years without an increase before the October 2008 announcement.  It's also important to note the increase to $250,000 was temporary when first announced; this limit was set to expire on December 31, 2013.

While retirement deposits were permanently increased in April 2006 to $250,000; the law now makes the 2008 announcement a permanent limit on all categories of account types.

Categories of Account Ownership

The FDIC recognizes different categories of ownership, and applies the insurance limit to each category.  For example, a married couple can hold multiple accounts at the same bank under different categories of legal ownership, each of which has its own limit.

The table below illustrates this point.  In this example, John and Jane hold five savings accounts at one FDIC insured bank:

Account Owner Ownership Category Limit
John Single $250,000
Jane Single $250,000
John and Jane Joint $500,000
John Retirement $250,000
Jane Retirement $250,000
Total $1,500,000

The above example demonstrates that under "ideal" conditions, couples could enjoy up to $1,500,000 in FDIC insurance at the same bank.  That's because of the way the accounts were spread over three different ownership categories.

For a better understanding of just how these insurance categories are defined, each is explained in more detail below.

Single Accounts

Perhaps the least complex category of deposit insurance applies to single accounts, which is an account that is owned by one person.  More precisely, this is an account held in one person's name, or an account established for one person by another agent, guardian, or custodian.  A single account also includes bank accounts held in the name of a business, but owned by a sole proprietorship.

The total of all deposits held by one person, at the same bank, are insured up to $250,000.

Joint Accounts

When a deposit is owned by two or more people, it's considered a joint account.  Legal entities such as corporations, estates, or trusts are not people, and therefore do not qualify under the FDIC rules for joint accounts.

An account is considered to be held jointly if all owners enjoy equal rights to withdraw money from the account.  Each owner of the deposit must also sign the account signature card.

The total value of the eligible insurance is the total of all co-owners' share of the account.  The insurance limit on jointly held accounts is the number of co-owners times $250,000.  For example, if an account is held by a husband and wife, the account would be fully insured up to $500,000.

It is not possible to increase the amount of insurance coverage by re-arranging the order of the owner names or otherwise changing the way each name appears on the account.  In addition, the FDIC assumes an equal share of jointly-held accounts, unless the account records specifically outline a different ownership arrangement.

Retirement Accounts

Back in April 2006, the law raised the limit of FDIC protection for retirement accounts to $250,000.  Retirement accounts include Roth IRAs, Traditional IRAs, Simplified Employee Pensions (SEP), SIMPLE IRAs, Section 457 deferred compensation accounts, 401(k) plans, and self-directed Keogh plans.

It's important to understand that even if a retirement account is held at an FDIC insured institution, the coverage only applies to traditional savings accounts and certificates of deposit.  Investments such as stocks, bonds, mutual funds and annuities are not insured.

The total protection is $250,000 for all retirement accounts that are owned by the same person at the same FDIC insured bank.

Partnerships / Corporations

For-profit and not-for-profit corporations as well as partnerships all fall under the same ownership category.  Qualifying corporations need to be engaged in activities other than operating for the sole purpose of increasing FDIC insurance coverage.

Operating structures such as sole proprietorships do not qualify as corporations under this category of coverage.  Instead, they are counted towards the single account coverage mentioned earlier.

All accounts ultimately owned by the same corporation or partnership (such as divisions and / or business units) are added together and insured up to the $250,000 limit.


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