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August 19, 2007

How Much Money Will FDIC Insurance Protect?

posted by MR WAVETHEORY at 8/19/2007 11:31:00 AM
The FDIC has a video tutorial on FDIC deposit insurance. It talks about the amount of money that the FDIC will insure depositors at FDIC insured banks. Most people are told that the FDIC insures up to $100,000 of deposit per institution but that's not entirely accurate. You can actually have more than $100,000 in insured deposits at one bank.

The FDIC actually insures four types of deposit accounts. Each type of account has a different amount that the FDIC will insure you for.

1. Single accounts - $100,000. Single accounts include checking and savings accounts.

2. Self-directed retirement accounts
- $250,000. These include traditional IRA's, Roth IRA's and self-directed Keoghs

3. Joint accounts
- $100,000 per depositor for joint accounts. A joint account is an account owned by two or more people. For instance, if a married couple has a joint account, they would each up insured up to $100,000 - meaning they can have up to $200,000 in join account deposits that are insured. Coverage is combined across all joint accounts at the bank. That means if you have more than one joint account, your coverage is still limited to $100,000.

4. Revocable trust accounts
- $100,000 per beneficiary. Revocable trust accounts include payable on death (POD) accounts or a living trust. For instance, a trust account with two beneficiaries would be covered up to $200,000.

In summary, a depositor can actually have well over $100,000 in insured deposits per institution. For instance, let's say Joe opens a single account, a retirement account, and a joint account. He is insured for $100,000 on the single account, $250,000 on the retirement account, and $100,000 on the joint account. He could have $450,000 in insured deposits. Joe can have more insured deposits by setting up a revocable trust and the insured amount is only limited by the number of beneficiaries. So, if Joe opens a revocable trust with two beneficiaries, Joe can get $650,000 in coverage.

What is interesting is that business accounts are actually treated separately. Businesses operated as a sole proprietorship are not eligible for business account coverage. However, corporations and partnerships and unincorporated association like churches and community groups can each have $100,000 in coverage. That means, if Joe opens a business account, he can have $750,000 in FDIC insured deposits. That's close to $1 million in insured deposits per bank. Technically, Joe can have even more coverage. Joe can setup multiple corporations and each corporation's bank account would be insured up to $100,000.

If you Joe were a wealthy person, Joe would have to use many banks to insure the safety of his deposits. At each bank, Joe would set up 4 personal accounts and 1 business account and deposit up to $750,000 to ensure maximum coverage.

Watch the video tutorial on FDIC deposit insurance coverage [FDIC.gov].

Read the transcript of the FDIC deposit insurance tutorial. [MrWaveTheory]

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