FDIC covers a lot more than just $100,000

Some joint accounts are insured for $200,000

Your Money

March 21, 2004|By Julie Jason

People who want ultimate safety often turn to their banks because of the Federal Deposit Insurance Corp. guarantee. The FDIC steps in when a bank goes out of business, and according to the sign in the teller window, covers up to $100,000 of deposits.

But FDIC insurance may cover more than $100,000 per depositor, depending on the category of legal ownership. As in the following hypothetical case, things are not as simple as they seem.

Let's suppose in one bank you have: a $75,000 certificate of deposit in your name; a $50,000 savings account; a $100,000 individual retirement account; a $100,000 CD payable on your death to your granddaughter; a $100,000 joint savings account with your godchild; a $225,000 joint savings account with your spouse, for a total of $650,000.

You also bought an annuity at the bank for $100,000. However, it's an uninsured product with no FDIC insurance coverage.

The $50,000 CD and $75,000 savings account are combined and insured to a maximum of $100,000 (not $125,000).

The IRA itself has full coverage up to $100,000, since IRAs are viewed as a separate category by the FDIC.

Likewise, payable-on-death accounts are a separate category. The POD account with your granddaughter gets full insurance coverage up to $100,000, because she is a qualifying beneficiary (a spouse, child, grandchild, and since 1999, parents or siblings of the owner).

The beneficiary must be identified by name in the deposit account records of the bank. "Parents" include biological, adoptive and stepparents, while "siblings" include full brothers/sisters, half brothers/sisters, brothers/sisters through adoption and stepbrothers/sisters, according to David Barr, an FDIC spokesman.

Joint accounts are also are a separate category and a little trickier. To be covered, each co-owner (they need not be related) must personally execute the account signature card and each must possess equal withdrawal rights.

In 1999, joint accounts became insured up to $100,000 per owner; for instance, a husband and wife could have $200,000 insured in a joint account.

"We take the joint account and divide it equally among the participants," said Barr.

But there is a catch. "We have to make sure that no one participant exceeds $100,000 in coverage for all their joint accounts, no matter who the joint owner is," Barr said.

In this case, add together your shares of the two joint bank accounts: $50,000 for the account with your godchild and $112,500 for the account with your spouse, totaling $162,500. This gives you insurance of $100,000, but $62,500 is uninsured.

Your godchild has $50,000 of insured money from the $100,000 joint account. Your spouse has $12,500 of uninsured money because his share of the $225,000 in your joint account is insured up to only $100,000.

Should your spouse die, after six months this account will be deemed to be your individual account. It would then lose its insurance protection, since your individual accounts total $325,000 and only $100,000 will be insured.

Barr warns, "Depositors need to take responsibility for making sure their deposits fall within FDIC insurance, regardless of advice given by bankers or others."

Call the FDIC call center at 877-ASK-FDIC for help or use the online tool to estimate coverage at www2.fdic.gov/edie/index.asp. Read more about FDIC coverage at www.fdic.gov/deposit/deposits/index.html.

Attorney Julie Jason is a money manager and retirement finance author who writes for The Advocate, Stamford, Conn., a Tribune Publishing newspaper. E-mail her at yourmoney@tribune.com.

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