How Much of Your Money is Safe?

In 1933, as America was grappling with the Great Depression and recovering from the stock market crash, the Federal Deposit Insurance Corporation (FDIC) was formed to reassure Americans that money deposited in banks across the country was safe. For 90 years, FDIC has operated a “deposit insurance fund” to protect consumer deposits at FDIC-insured banks. FDIC deposit insurance applies to checking accounts, savings accounts, money market accounts, certificates of deposit (CDs), and some types of retirement accounts but does not apply to mutual funds, stocks, bonds, life insurance, crypto assets, or annuities. The importance of FDIC was highlighted in 2023 after the failures of Silicon Valley Bank and Signature Bank. Still, it is critical to understand that there are limits to the coverage provided:

Source: https://www.fdic.gov/resources/deposit-insurance/brochures/deposits-at-a-glance

There are two important things to keep in mind with this table:

1. These limits apply for accounts at the same bank. Thus, if you have three Wells Fargo accounts—a Checking Account with $60,000, Savings with $90,000, and a 12-month CD with $120,000—then you have exceeded the FDIC limits and have $20,000 of uninsured funds. However, if you have those same three accounts but the 12-month CD is at State Employee’s Credit Union instead of Wells Fargo, then 100% of your funds are fully insured.

2. Accounts that name beneficiaries are insured as revocable trust deposits. So, if your individual savings account lists your child as the Payable on Death beneficiary, then that checking account is insured as a revocable trust account, not a single account.

It is important to note that the coverage rules for trust accounts are changing effective April 1, 2024. The purpose of the change is to eliminate the difference in how revocable trust deposits and irrevocable trust deposits are treated. Under the new rules, formal revocable trust accounts, informal revocable trust accounts (such as those set up a payable on death) and irrevocable accounts will all be subject to the same insurance limits. The insured amount will be $250,000 per owner, per unique beneficiary, per institution, up to a maximum of five beneficiaries (or $1,250,000). In calculating "unique beneficiaries," only the primary beneficiaries count, not contingent beneficiaries. So, for example, a trust account with four unique primary beneficiaries would be insured up to $1,000,000.

No one expects a bank to fail until it does. If it happens to your bank, you don't want to be caught holding the [empty] bag. To find out how much of your money is protected, use the FDIC's Electronic Deposit Insurance Estimator (EDIE).

If you are interested in learning more about the new rules for trusts, the FDIC has a great PowerPoint presentation with helpful examples available here: fdic-new-trust-account-rule-seminar-banker-slides-2022.pdf.

Phone: (919) 678-5761 Email: admin@leavealegacync.com