Older Americans put their money… and their trust… in FDIC-insured bank accounts because they want peace of mind about the savings they've worked so hard over the years to accumulate. Here are a few things we want senior citizens to know and remember about FDIC insurance.
1. The basic insurance limit is $100,000 per depositor per insured bank.
If you or your family have $100,000 or less in all of your deposit accounts at the same insured bank, you don't need to worry about your insurance coverage. Your funds are fully insured. Your deposits in separately chartered banks are separately insured, even if the banks are affiliated, such as belonging to the same parent company.
2. You may qualify for more than $100,000 in coverage at one insured bank if you own deposit accounts in different ownership categories.
There are several different ownership categories, but the most common for consumers are single ownership accounts (for one owner), joint ownership accounts (for two or more people), self-directed retirement accounts (Individual Retirement Accounts and Keogh accounts for which you choose how and where the money is deposited) and revocable trusts (a deposit account saying the funds will pass to one or more named beneficiaries when the owner dies).
Deposits in different ownership categories are separately insured. That means one person could have far more than $100,000 of FDIC insurance coverage at the same bank if the funds are in separate ownership categories.
3. A death or divorce in the family can reduce the FDIC insurance coverage.
Let's say two people own an account and one dies. The FDIC's rules allow a six-month grace period after a depositor's death to give survivors or estate executors a chance to restructure accounts. But if you fail to act within six months, you run the risk of the accounts going over the $100,000 limit.
Example: A husband and wife have a joint account with a "right of survivorship," a common provision in joint accounts specifying that if one person dies the other will own all the money. The account totals $150,000, which is fully insured because there are two owners (giving them up to $200,000 of coverage).
But if one of the two co-owners dies and the surviving spouse doesn't change the account within six months, the $150,000 deposit automatically would be insured to only $100,000 as the surviving spouse's single-ownership account, along with any other accounts in that category at the bank. The result: $50,000 or more would be over the insurance limit and at risk of loss if the bank failed.
Dennis Trimper, a specialist with the FDIC division that handles insurance claims, recalled a bank closing in Florida where some elderly depositors had money over the insurance limit because they had not made a change to their accounts after a spouse died.
"The story was generally the same," he said. "A couple retired, sold their house and placed more than $100,000 in a joint account. Then one spouse died and more than six months later the bank failed. The remaining spouse then faced the prospect of losing some of their life savings."
Also be aware that the death or divorce of a beneficiary on certain trust accounts can reduce the insurance coverage immediately. There is no six-month grace period in those situations.
4. No depositor has lost a single cent of FDIC-insured funds as a result of a failure.
FDIC insurance only comes into play when an FDIC-insured banking institution fails. And fortunately, bank failures are rare nowadays. That's largely because all FDIC-insured banking institutions must meet high standards for financial strength and stability.
But if your bank were to fail, FDIC insurance would cover your deposit accounts, dollar for dollar, including principal and accrued interest, up to the insurance limit.
If your bank fails and you have deposits above the $100,000 federal insurance limit, you may be able to recover some or, in rare cases, all of your uninsured funds. However, the overwhelming majority of depositors at failed institutions are within the $100,000 insurance limit.
5. The FDIC's deposit insurance guarantee is rock solid.
As of mid-year 2005, the FDIC had $48 billion in reserves to protect depositors. Some people say they've been told (usually by marketers of investments that compete with bank deposits) that the FDIC doesn't have the resources to cover depositors' insured funds if an unprecedented number of banks were to fail. That's false information.
"If needed, the FDIC has several ways to raise additional funds, including the authority to collect more money from insured banking institutions and borrow from the U.S. Treasury," said James Williams, an FDIC Consumer Affairs Specialist. "FDIC-insured deposits also are backed by the full resources of the United States government — the strongest guarantee you can get."
6. The FDIC pays depositors promptly after the failure of an insured bank.
Most insurance payments are made within a few days, usually by the next business day after the bank is closed. Don't believe the misinformation being spread by some investment sellers who claim that the FDIC takes years to pay insured depositors.
7. You are responsible for knowing your deposit insurance coverage.
"As much as the FDIC would like every customer to be fully protected when a bank fails, federal law is very specific about how much insurance the FDIC can pay," said Williams. "That's why it's important for consumers to take the time to be sure they're fully insured."
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