FDIC protection questions

Factual Questions
1

As of now, the FDIC protects individual investors up to $250k in case of a bank failure. This is supposed to keep folks from making a run on a bank if there is a financial crisis, and was created out of the aftermath of the Great Depression. As I understand it, this limit is being reduced to $100k at the end of the year.

Questions: how do they define this? Is this per bank or per person or per person at each bank?

Lets say I have $1 million. Am I protected if I put $100k in each of 10 separate banks, or does the FDIC only guarantee me $100k as an individual investor, regardless of bank?

Instead of 10 banks, can I open 10 different accounts with one bank? For example, can I have 10 different savings accounts, each with $100k in the same bank, or is this considered the same investor at the same bank?

What if I have $100k in my checking and $100K in my savings at one bank? Are these considered two different accounts, and are protected, or am I still only protected for $100k?

If I am married, is it considered a separate (and therefore protected acct) if I have one with my name one it, my wife has one with her name on it, and we have a joint account? So, for each acct, we could be protected for a total of $300k?, or is it only protected at $100k since it is all at the same bank?

What if I have $100k in savings, and $100k in CD’s? Do I only have insurance on $100k?

What is/are the ways in which an investor can safely insure his cash money solely theough the FDIC system? Is there any other place $100k could be placed that would be covered by the FDIC that dos not include a bank or credit union?

Thanks

2

FDIC covers the bank, not the individual. So if you put 100k in one bank and 100k in another bank you’re covered at both banks even if both go under.

I’m not entirely sure of how it works out with multiple accounts at one bank or CU, but I’ve always heard it as if you want to be sure you’re covered for more than 100k use accounts at separate banks to do it.

3

It’s $100k per bank, in all accounts at that bank. I think that limit is for each person, so if you had joint accounts with your spouse, it’d be up to a total of $200k.

If you put $100k in another bank, then that’s a separate account and is insured.

The FDIC only insures banks. Federal Credit Unions are insured by the NCUSIF, which is essentially the same thing, but a different agency. Technically, then, you can be insured in a credit union but not by the FDIC.

4
5

First, the $250,000 was made permanent. It is not scheduled to revert to $100,000. Congress would have to change the law for that to happen.

The limit is $250,000 per person per ownership category per bank.

So you could have $250k in four separate banks and be fully insured. Just make sure they really are separate banks, not branches of the same bank, or marketing names of the same bank. For example, E-Loan Bank and Banco Popular are the same bank marketing products under two different names.

The most common ownership categories are individual, joint, revocable trust, and retirement (IRA). There are a couple of more obscure ones, too.

For example, if in one bank you have an individual account of $250k, a joint account with your wife of $500k, an IRA account of $250,000 and a “payable on death” account with you as the owner and your wife as the beneficiary, they would all be covered fully (assuming you didn’t have any other accounts at that bank and your wife didn’t have any other joint accounts at that bank).

If you have both an individual savings and an individual checking account at one bank, they are added together and the total is insured to $250k. The rule is that all accounts in a single category (individual, joint, etc) at a single bank are added together and the total is insured up to $250k.

Revocable trust accounts are even more flexible. The limit is $250k per grantor per beneficiary. So if you had a payable-on-death (POD) account naming 5 different beneficiaries, you would be insured up to $1,250,000 for that one account. If you had a joint POD account with your wife naming 5 beneficiaries, you would be insured up to $2,500,000 for that account. (This assumes you and your wife have no other revocable trust accounts at that bank with any of the same beneficiaries.)

There is even a simplified rule for revocable trust accounts. If you have 5 or fewer total beneficiaries over all of your revocable trust accounts in the same bank, just add all of your revocable trust accounts together and they are insured up to $250,000 times the number of beneficiaries. For example, you could have one POD account with beneficiary John Doe with $1 in it and one with beneficiary Jane Doe with $499,999 and they would be fully insured (assuming these were your only accounts).

But note one rule: The trust account must have the words “In Trust For” or “Payable on Death” or the abbreviations ITF or POD or similar generally recognized terms in the account title. (This is not necessary at NCUA credit unions.)

Remember that when interest is added to your CD or savings account and that pushes the total in the account over the insured limit, the part over the insured limit is not insured.

The easiest thing to do is to put your proposed account(s) into the FDIC EDIE calculator and let it tell you if the account is insured.

6

The credit union equivalent of the FDIC is the NCUA. The fund administered by the NCUA is called the NCUSIF.

7

Historically, the FDIC typically paid off all depositors without regard to the limit. Not sure if that’s still the case.

8

No, it’s actually the other way around.
Historically, the FDIC has stuck to the limits. But since about 2008 in cases where the FDIC has found new banks to acquire the failed banks, it has been negotiating deals that cover all the depositors with the possible exception of brokered deposits.

Also note that just because your deposits may be uninsured does not necessarily mean you won’t get them back. You get your insured deposits almost immediately. If the FDIC manages to liquidate the assets of the failed bank successfully, it pays what are called “dividends” to the uninsured depositors out of the proceeds.

For example, Bank of Honolulu failed on October 13, 2000. The FDIC transferred all insured deposits to Bank of the Orient immediately and then paid an advance of 65% of the uninsured deposits and then made periodic dividend payments until all uninsured deposits were paid off on March 17, 2005.

Depositors of Netbank that folded on Sept 28, 2007 weren’t so lucky. Insured deposits were immediately transferred to Ing Direct. Uninsured depositors got an advance of 50% of their uninsured balances and so far have only received back 88% of their uninsured deposits.

Contrast that to Mountain National Bank that failed on June 7, 2013. All deposits, insured and uninsured, except brokered accounts, were transferred to First Tennessee bank. Insured brokered deposits were paid off and uninsured brokered deposits have not received anything yet.

But contrast that to Nova Bank that failed October 26, 2012. No bank could be found to acquire the failed bank. The insured portion of the accounts was paid off. Uninsured depositors have received nothing as yet.

FDIC failed bank list.