Posted on Friday, 24th October 2014 by

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Over two years ago, this site addressed the confusion many retirees share over understanding how the Federal Deposit Insurance Corporation (FDIC) insurance limitations apply to the various types of accounts they may have in one financial institution. Despite a dramatic drop in the number of failures, the number of banks on the FDIC’s problem bank list remains a concern. Generally, a problem bank is defined as one considered to be in financial difficulty based on an analysis of various factors, including liquidity, capital levels, and asset quality.

As a result, the extent to which the FDIC insures various types of accounts continues to be a critical financial planning piece for retirees or those contemplating retirement, particularly if one’s life savings are deposited in one institution. This entry revisits and updates the basic deposit insurance rules, as well as providing readers with resources necessary to determine how those rules apply to them.

Deposit Insurance Rules

The FDIC insures the following types of deposit accounts at banks and savings associations: checking, Negotiable Order of Withdrawal (NOW), savings, money market, and certificates of deposit (CDs) up to the insurance limit. It is just as important to know that the FDIC does not insure the contents of safe deposit boxes or the money you invest in stocks, bonds, mutual funds, life insurance policies, annuities, or municipal securities, even if you purchased these products from an insured bank or savings association. The National Credit Union Administration (NCUA) applies analogous rules and insurance limits to funds deposited in their insured institutions.

When President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act on July 21, 2010, the standard maximum deposit insurance amount permanently became $250,000. Previously, there had been a temporary increase from $100,000 to $250,000 starting on October 3, 2008. In terms of basic bank accounts, this means that both a single account (one owner) and joint account (two or more owners) are insured up to $250,000 per owner. As a result, a married couple can keep a million dollars liquid and insured in a single bank by dividing up the money as follows: husband’s single account with $250,000, wife’s single account with $250,000, joint account with $500,000 ($250,000 each). There are some applicable intricacies. For example, it is important to remember that a “single account” applies to all accounts held in one name only at the same institution. Simply put, the assets of all checking, savings, or other accounts held in one name at the same bank are added together for insurance purposes. This applies to “joint ownership” accounts as well, as long as the co-owners have equal rights to withdraw funds.

IRAs, Retirement Accounts and Revocable Trusts

In addition to single and joint deposit accounts, the FDIC separately insures IRAs and certain other retirement accounts, such as 401 (k) plans and deferred compensation plan accounts. As is the case with checking and savings accounts, all retirement accounts held by one owner in any of these retirement plans are added together for the purpose of applying the $250,000 insurance limit. This limitation applies regardless of the existence of any named beneficiaries.

In contrast, the number of beneficiaries generally determines the amount of insurance coverage for a revocable trust account; those beneficiaries may include individuals, charities, or non-profit organizations. For example, the FDIC will insure a revocable trust account owned by a parent payable upon death to three children up to $750,000. In this instance, the owner of the trust is not counted for the purpose of calculating insurance coverage.

Treatment of CDs

The FDIC applies the same rules regarding single/joint accounts and insurance limits to funds deposited in certificates of deposit (CDs). However, through a network of over 3,000 financial institutions known as the Certificate of Deposit Account Registry Service (CDARS), a single individual can deposit millions of dollars in CDs at one bank and enjoy FDIC insurance for the total amount. This is accomplished through the distribution of the funds deposited in the CDs across the CDARS network. Consequently, the principal and interest deposited in any one institution remain below the $250,000 insurance limit. The only drawback is that the rate offered may be lower than what could be obtained by shopping for rates with competing institutions.

Please visit the FDIC’s website for a wealth of detailed information and examples regarding the types of accounts insured and the limits applied to those accounts. You can also access an easy-to-use tool, EDIE The Estimator, to input your specific account information and determine the extent of your insurance coverage.

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The information provided may not cover all aspect of unique or special circumstances, federal regulations, medical procedures, and financial information are subject to change. To ensure the accuracy of this information, contact relevant parties and ask them to review your official personnel file and circumstances concerning this issue. Retirees can contact the OPM retirement center. Our article is not intended nor should it be considered investment advice and our articles and replies are time sensitive. Over time, various dynamic economic factors relied upon as a basis for this article may change. The advice and strategies contained herein may not be suitable for your situation and this service is not affiliated with OPM or any federal entity. You should consult with a financial, medical or human resource professional where appropriate. Neither the publisher or author shall be liable for any loss or any other commercial damages, including but not limited to special, incidental, consequential, or other damages


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