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Busting the FDIC $100,000 Myth

How much does the FDIC really insure?

Helen Modly, 05/01/2008

Your older clients are smart, and maybe even financially savvy, but how many times do you see them owning multiple Certificates of Deposit at multiple banks because of the $100,000 insurance limit? Some of them think they are "beating the system" by owning two jointly held CDs at the same bank, just reversing the order of their Social Security numbers. The proliferation of different banks can begin to resemble the carefully buried nuts of a busy squirrel. Anyone who has tried to streamline the finances of an aging parent or consolidate the financial assets of a surviving spouse will be able to relate to the headache this fragmentation can cause.

Interestingly, most people, including many advisors, don't have the foggiest idea how the FDIC insurance program really works.

What is the FDIC and what does it do?
The Federal Deposit Insurance Corporation is an independent agency of the US government. It insures all deposits such as checking, savings, NOW, money markets, and CDs, held in an insured bank or savings and loan association. It has two levels of insurance coverage; basic and separate.

Basic Coverage
This is how the $100,000 myth started. FDIC insures $100,000 per depositor per insured bank. If a family has less than $100,000 in all of their accounts combined, at the same bank, they are fully insured.
Separate Coverage

Here is where the confusion occurs. Aside from the increased coverage limits for certain retirement plans, depositors can qualify for additional coverage based upon the ownership categories of their deposits. There are four common ownership categories:

* Single, or Individual Accounts
* Certain Retirement Accounts
* Jointly Owned Accounts
* Revocable Trust Accounts

Single Accounts
This is an account owned by one person and registered in that person's name only. All the single accounts for one depositor in one insured bank are added together and the total is insured by FDIC up to $100,000.

Certain Retirement Accounts
Certain retirement accounts are insured up to $250,000 per depositor/ per insured bank. These include IRAs, SEP-IRAs, Roth IRAs, SIMPLE IRAs, and section 457 deferred compensation plans. Other self-directed defined contribution plans, such as H.R. 10 or Keogh plans are also covered up to $250,000 per depositor. If one depositor has a $100,000 IRA, a $50,000 Roth IRA and a $150,000 Keogh plan at the same bank, only $250,000 out of the total $300,000 in retirement plan assets would be insured by the FDIC. Having multiple beneficiaries on retirement accounts does not increase the amount of FDIC coverage.

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