Jane Dotson
Bank deposit insurance is a safety net for depositors, protecting their money in the event of a bank failure. The Federal Deposit Insurance Corporation (FDIC) in the US insures deposits up to $250,000 per depositor, per insured bank, and for each account ownership category. To increase coverage, individuals can open multiple accounts under different ownership categories, such as single and joint accounts, at the same bank. Additionally, retirement accounts and trusts with designated beneficiaries can provide further coverage. For those seeking higher limits, alternatives like MaxSafe and credit unions offer increased protection beyond FDIC limits. Understanding these options helps depositors maximize their insurance coverage and safeguard their finances.
| Characteristics | Values |
|---|---|
| Maximum deposit insurance amount | $250,000 per depositor, per insured bank, for each account ownership category |
| Account ownership categories | Single accounts, joint accounts, retirement accounts, business accounts |
| Increasing FDIC insurance coverage | Open accounts under different ownership categories at the same bank, set up a trust, use credit unions, use IntraFi Network Deposits CDs, open a cash management account |
| Excluded from FDIC insurance coverage | Investment products (stocks, bonds, mutual funds), cryptocurrencies, contents of safe deposit boxes, life insurance policies, annuities, municipal securities |
| Deposit insurance for credit unions | National Credit Union Administration (NCUA) provides $250,000 coverage per account ownership category |
| Deposit insurance for Massachusetts residents | Depositors Insurance Fund (DIF) offers unlimited insurance above FDIC limits |
| Deposit insurance for high balances | MaxSafe by Wintrust allows depositors to increase FDIC insurance limits from $250,000 to $3.75 million |
| FDIC coverage for payable-on-death accounts | Requires identifying information about beneficiaries, including address, birthdate, and government-issued ID number |
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What You'll Learn
Open multiple accounts under different ownership categories at the same bank
Opening multiple accounts under different ownership categories at the same bank is one of the simplest ways to increase your bank deposit insurance. The Federal Deposit Insurance Corporation (FDIC) insures deposits placed in savings accounts, money market accounts, checking accounts, and certificates of deposit (CDs). FDIC insurance covers the principal and any accrued interest on all your bank deposits. The standard maximum deposit insurance amount is $250,000 per depositor, per insured bank, for each account ownership category.
Single accounts (one owner) are insured up to $250,000 total at each bank. Joint accounts (two or more owners) provide $250,000 in coverage per owner. Retirement accounts like IRAs receive their own $250,000 in coverage, separate from your other accounts. Business accounts are also insured up to $250,000, independent of any personal accounts you may have at the same bank. Each ownership category receives its own $250,000 insurance limit, effectively multiplying your protection.
For example, a married couple could structure their accounts to insure $1 million at a single bank: Individual account in spouse #1’s name: $250,000. Individual account in spouse #2’s name: $250,000. You could also set up a trust and name beneficiaries who would receive the money upon your death if you have significant excess deposits.
It is important to note that having multiple accounts of the same type at one bank doesn't increase your coverage. Additionally, different branches of the same bank count as one institution for FDIC purposes.
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Set up a trust and name beneficiaries
Setting up a trust and naming beneficiaries is one way to increase bank deposit insurance. This method involves establishing a payable-on-death (POD) account or a living trust with named beneficiaries, typically family members. Each named beneficiary can be insured for up to $250,000, and the total coverage can reach up to $1.25 million. For example, if you set up a POD account naming your three children as beneficiaries, each child's interest would be insured for up to $250,000, resulting in a potential coverage of $750,000 for that account.
It is important to note that only certain individuals qualify as beneficiaries, including a spouse, child, grandchild, parent, or sibling. Other individuals, such as in-laws, cousins, and charities, do not meet the requirements set by the Federal Deposit Insurance Corporation (FDIC). The FDIC also requires that the beneficiaries and their interests be clearly identified in the bank's deposit account records or the trustee's records.
In the case of a trust with multiple beneficiaries, the FDIC considers each beneficiary only once for that particular trust owner at the same bank when calculating deposit insurance coverage. Additionally, the death of an account owner or a beneficiary can impact deposit insurance coverage, and the FDIC provides a six-month grace period where the account is insured as if the owner were still alive, allowing time for families to restructure accounts.
While setting up a trust and naming beneficiaries can increase deposit insurance coverage, it is essential to understand the specific requirements and limitations. The trust must be valid under state law, and certain conditions, such as educational requirements, cannot be imposed on the beneficiaries. Furthermore, the trust owner cannot retain an interest in the trust, and the number of beneficiaries does not directly impact the total coverage.
By understanding the rules and requirements, individuals can effectively utilize the strategy of setting up a trust and naming beneficiaries to maximize their bank deposit insurance coverage.
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Open accounts at separately chartered banks
If you have deposits exceeding the FDIC insurance limit of $250,000, one way to increase your deposit insurance is to open accounts at separately chartered banks. This is because the FDIC insurance limit applies per depositor, per insured bank, and per ownership category. By opening accounts at different banks, you can take advantage of the separate insurance coverage provided by each institution.
- Different branches of the same bank count as one institution for FDIC purposes, so be sure to open accounts at completely separate banks.
- You will need to put in the time and effort to stay organized and keep track of your accounts. This approach may not be suitable for those who are not willing or able to manage multiple accounts effectively.
- This strategy can work well for CD investors. For example, you could open a $250,000 CD at one bank offering a competitive rate for a 1-year term, and then open another $250,000 CD at a different bank with a 2-year rate.
- Online banks that are FDIC members provide the same protection as traditional brick-and-mortar banks. Popular online banks like Ally and Marcus by Goldman Sachs offer competitive rates alongside full FDIC coverage.
- If you prefer a more hands-off solution, you can consider using bank networks that can automatically manage the process for you, protecting potentially millions in deposits.
- Always verify the FDIC membership status of the banks you choose and track your total deposits at each bank across all your accounts.
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Open a retirement account
Retirement accounts like IRAs (Individual Retirement Accounts) receive their own $250,000 in FDIC insurance coverage, separate from your other accounts. This includes traditional deposit accounts, savings accounts, money market accounts, checking accounts, and certificates of deposit (CDs).
The FDIC adds together all certain retirement accounts owned by the same person at the same bank and insures the total amount up to a maximum of $250,000. For example, if you have a retirement account with a balance of $200,000 and another retirement account with a balance of $100,000 at the same bank, the FDIC will insure the total balance of $300,000.
To open a retirement account, you can consider options like the Traditional IRA or Roth IRA, which depend on your age, income, and financial goals. Any earnings in these accounts are federal income tax-free if withdrawn at or after age 59 1/2, provided the account has been open for at least five years. Contributions can be withdrawn tax-free at any time.
You can open an IRA online with banks like Bank of America, which offers FDIC-insured IRAs with interest-bearing CDs or money market savings accounts. Merrill Edge is another option, offering a full range of investment choices, including stocks, bonds, ETFs, and mutual funds.
Additionally, consider the following:
- The number of beneficiaries: FDIC insurance covers retirement accounts where participants direct how money is invested. Each owner can have up to four unique beneficiaries, and each beneficiary is insured up to $250,000.
- Trust accounts: Retirement accounts can be structured as revocable or irrevocable trusts, with named beneficiaries who receive the money upon the owner's death.
- Employee benefit plans: These include defined benefit plans and defined contribution plans, insured as Employee Benefit Plan Accounts.
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Open accounts at credit unions
Opening accounts at credit unions is a great way to increase your bank deposit insurance. Credit unions are insured by the National Credit Union Administration (NCUA), which provides the same level of coverage as the Federal Deposit Insurance Corporation (FDIC) for banks, i.e. $250,000 per account ownership category.
Credit unions offer an alternative to traditional banks, with similar federal insurance protection. The NCUA, like the FDIC, is backed by the full faith and credit of the US government. Credit unions often offer higher rates on deposits than traditional banks, along with generally lower fees and more personalised service.
To open an account at a credit union, you must first become a member. Membership requirements vary but are often quite lenient, sometimes extending to family and friends. Federally insured credit unions are required to display the official NCUA insurance sign at each teller station, where insured account deposits are normally received, as well as on their websites and in all branches.
You can use the NCUA's Share Insurance Estimator to see if all your credit union deposits are covered. This tool can be used for personal, business, or government accounts. It's important to note that not all credit unions have federal insurance. State-chartered credit unions are regulated by the state and may or may not have federal insurance. If a state-chartered credit union is not federally insured, it will be privately insured and not backed by the federal government.
By opening an account at a credit union, you can increase your deposit insurance coverage and take advantage of the benefits that credit unions offer.
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Frequently asked questions
The FDIC insures deposits placed in savings accounts, money market accounts, checking accounts, and CDs. This means that your money is protected in the event of a bank failure. The standard insurance amount is $250,000 per depositor, per insured bank, for each ownership category.
You can increase your FDIC insurance coverage by opening accounts in different ownership categories, such as single accounts and joint accounts. For example, if you and your spouse each have a single account insured up to $250,000, together you will have a total of $500,000 in coverage. You can also pool your money into joint accounts, which are insured separately, up to a total of $250,000 per owner.
You can consider opening accounts at different chartered banks to expand your FDIC coverage. Credit unions also offer federal insurance protection through the National Credit Union Administration (NCUA), which provides the same $250,000 coverage per account ownership category as the FDIC. Additionally, you can increase your coverage by setting up multiple beneficiaries for your account.
Yes, the Depositors Insurance Fund (DIF) offers unlimited insurance above FDIC limits for Massachusetts residents or those banking with Massachusetts-based institutions. MaxSafe, offered by Wintrust, is another option that allows depositors to increase their FDIC insurance limits from $250,000 to $3.75 million.
