How much do your savings get protected by the FDIC?
Older Americans put their savings and trust in FDIC-insured bank accounts because they want to feel safe about the money they've worked so hard to save over the years. Here are a few things about FDIC insurance that older people should know and remember.
- The basic limit for insurance is $100,000 per depositor per insured bank. If all of your deposit accounts at the same insured bank total less than $100,000, you don't need to worry about your insurance coverage. All of your money is safe. Your money in banks with different charters is insured separately, even if the banks are related in some way, like being owned by the same parent company.
- If you have different types of deposit accounts at one insured bank, you may be able to get more than $100,000 in coverage. There are different types of ownership, but the most common ones for consumers are single ownership accounts (for one owner), joint ownership accounts (for two or more people), self-directed retirement accounts (Individual Retirement Accounts and Keogh accounts) where you choose how and where the money is deposited, and revocable trusts (a deposit account saying the funds will pass to one or more named beneficiaries when the owner dies). Deposits from different types of owners are insured separately. This means that one person could have a lot more than $100,000 in FDIC-insured funds in the same bank, as long as the funds were in different ownership categories.
- If someone in the family dies or gets divorced, the FDIC insurance coverage can go down. Say there are two people who own an account and one of them dies. The FDIC's rules give survivors or the person in charge of the depositor's estate six months to change the way the account is set up. But if you don't do anything within six months, the accounts could go over $100,000.
A husband and wife have a joint account with a "right of survivorship." This means that if one of them dies, the other person will own all the money in the account. The account is worth $150,000 and is fully insured because it has two owners, giving them up to $200,000 in coverage. But if one of the two co-owners dies and the surviving spouse doesn't change the account within six months, the $150,000 deposit will automatically be insured for only $100,000 as the surviving spouse's single-ownership account, along with any other accounts in that category at the bank. Because of this, more than $50,000 would be over the insurance limit and could be lost if the bank went bankrupt.
Also, be aware that if a beneficiary on a certain trust account dies or gets divorced, the insurance coverage can be cut right away. In those cases, there is no six-month grace period.
- When an insured bank fails, the FDIC pays depositors quickly. Most insurance payments are made within a few days, usually by the next business day after the bank closes. Some people who sell investments are spreading false information that it takes the FDIC years to pay insured depositors.
- The FDIC's promise to cover deposits is rock solid. As of the middle of 2005, the FDIC had saved $48 billion to protect depositors. Some people say they've been told (usually by people who sell investments that compete with bank deposits) that the FDIC doesn't have the money to cover depositors' insured funds if a large number of banks failed at once. That is not the truth.
- It's up to you to know what your deposit insurance covers.
- No one has ever lost a single cent of money that was insured by the FDIC because of a failure. FDIC insurance is only used when a bank that is insured by the FDIC fails. And luckily, banks usually don't fail these days. Most of the reason for this is that all banks insured by the FDIC must meet high standards for financial strength and stability. But if your bank went bankrupt, the FDIC would cover your deposit accounts, dollar for dollar, including the principal and interest, up to the limit of the insurance. If your bank fails and you have more than $100,000 in deposits that aren't covered by the government, you may be able to get some or, in rare cases, all of your money back. But the vast majority of people who have money in failed banks are below the $100,000 insurance limit.
Learn the rules and keep your money safe.
