This article originally appeared as a column for the Cleveland Jewish News.
You may have seen the “FDIC Insured” placard at your local bank branch. As the placard indicates, each depositor is “insured to at least $250,000,” which insurance is “backed by the full faith and credit of the United States Government.”
Whether from reading that or from other sources, you may have some basic inkling that your funds are protected. But do you know what this actually means? As a divorce attorney, part of my job is to be fully aware of my client’s financial situation. While I regularly deal with individuals having a wide array of financial sophistication, from time to time I am surprised to find that an individual’s deposits exceed the insured limits.
The Federal Deposit Insurance Corp., or FDIC, is an independent government agency established during the Great Depression as part of a wider effort to stabilize the United States’ banking system. The FDIC performs some governmental oversight of the banking system, as well as some consumer protection functions.
Arguably, its best known, and perhaps most important, function is to insure the funds deposited in banks and other savings associations. This means that should your bank become insolvent you will get your money back. Until recently, such an event may have seemed a bit implausible, especially at one of the “too big to fail” banks. Yet just such an occurrence has happened over and over again during the current recession.
Since 2008, the standard insured deposit amount has been $250,000, per depositor, per insured institution, in each ownership category. For nearly three decades prior, the insured limit had been $100,000.
The FDIC has defined the various ownership categories as follows: single accounts (generally, accounts with one owner), certain retirement accounts (such as individual retirement accounts and self-directed 401(k) plans, if the funds are directed into an insured institution account), joint accounts (ones with more than one owner with equal rights to withdraw), revocable trust accounts (such as “payable on death” accounts) or other revocable or irrevocable trust accounts, employee benefit plan accounts, corporation/partnership/unincorporated association accounts, and government accounts.
This means that one bank customer may be insured for more than the $250,000 limit if he or she has monies in multiple types of accounts. Further, one account may be insured for more than the standard limit if, for example, it is owned jointly. In such a case each owner will be separately insured.
The FDIC protection covers deposit accounts such as checking, savings, money market and certificate of deposit accounts, as well as checks written on accounts of a bank. Brokerage/investment accounts, such as stocks, bonds, mutual funds, annuities, or securities, do not qualify for coverage, nor do life insurance policies and safe deposit box contents.
While this article can only skim the surface of this complex coverage, the bottom line is that if your accounts are below the $250,000 threshold, you will be protected. Should you have accounts at or approaching the insured levels you should consider diversifying to ensure you will be fully covered.
*Andrew Zashin writes about law for the Cleveland Jewish News. He is a co-managing partner with Zashin & Rich, with offices in Cleveland and Columbus.