Protect Yourself and Your Money Against Bank Failures

“Regardless of the health of your bank or condition of the overall economy … returns are never high enough to justify the exposure of uninsured deposits.”

This is a quote from an article appeared on The Wall Street Journal online yesterday. Very true, isn’t it?

As more and more banks failed amid this sub-prime mortgage credit crisis (three more banks have failed since the collapse of IndyMac according to the FDIC, including First Priority Bank, which is one of ten banks seen as risky), it’s important to everybody’s financial security that the money one has in a bank is insured by the FDIC.

Usually, when we talk about FDIC insurance, the $100,000 limit will come up first. However, that $100,000 is the basic insurance amount per depositor, per insured bank, which means if the account is owned by more than one person, the insured amount will go up accordingly. So if you have more than $100,000, in addition to depositing the money at more than one FDIC insured bank, you can have the money with a single bank and still enjoy the full insurance.

The FDIC has a brochure (PDF file) on all the insured deposits with a single bank that’s a member of the FDIC. These accounts include:

• Single Account: Deposits is owned by one person. All single accounts at All single accounts owned by the same person at the same insured bank are added together and the total is insured up to $100,000.
• Certain Retirement Account: Deposits owned by one person as the person’s retirement accounts, such as IRA accounts, self-directed 401(k) accounts, self-directed SIMPLE IRA accounts and self-directed Keogh accounts. All retirement accounts owned by the same person in the same FDIC-insured bank are added together and the total is insured to $250,000.
• Joint Account: Deposits owned by two or more people with each having equal right to withdraw from the account. In this case each co-owner’s share of every account that is jointly held at the same insured bank is added together with the co-owner’s other shares, and the total is insured up to $100,000.
• Revocable Trust Account: An account owned by one or more people with an intention that the deposits will belong to one or more beneficiaries upon the death of the owner(s). Revocable trust accounts include Payable-on-Death (POD) Accounts and Living/Family Trust Accounts. There are certain conditions for these types of accounts to be met, but generally each beneficiary is insured up to $100,000.
• Employee Benefit Plan Account: Deposits of a pension plan, profit-sharing plan or other employee benefit plan. Deposits in employee benefit plan account are insured up to $100,000 for each participant’s non-contingent interest in the plan.

The  WSJ article uses an example to show how to play it safe for more than $1 million with the above mentioned accounts.

A married couple, John and Sue Smith, could have more than $1 million of insured deposits at a single bank by holding them in different ownership categories. For example:

• John Smith: Individual account, $100,000;
• Sue Smith: Individual account, $100,000;
• john Smith: Individual retirement account, $250,000;
• Sue Smith: Individual retirement account, $250,000;
• John and Sue Smith: Joint account, $200,000;
• John and Sue Smith, revocable trust account payable on death to son and daughter, $400,000.

To find out exact how much of your money is insured at a bank, you can also try the FDIC’s Electronic Deposit Insurance Estimator (EDIE), an online calculator that calculates the amount of insured deposits of your personal and business accounts at a single bank.

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