FDIC limits & different categories of coverage (reference article)
Keeping an eye on federal deposit insurance limits
SAVERS SHOULD SPREAD OUT THEIR ASSETS
By Eileen Alt Powell
Associated Press
Article Launched: 10/28/2007
NEW YORK - When the $2.5 billion NetBank was closed by federal regulators last month, some 1,500 of accounts in the online bank had balances that exceeded federal deposit insurance limits.
The owners of those accounts, with deposits totaling $109 million, won't necessarily lose all their money because federal insurance may cover some, and they'll share in the proceeds of the sale of the failed bank's assets. Still, it could take time for the bank to be liquidated, and they may not get 100 percent of their money back.
The fact is, consumers don't have to take that kind of risk.
The Federal Deposit Insurance Corp., which insures bank and savings bank deposits, and the National Credit Union Share Insurance Fund, which covers credit union accounts, make sure consumers get all of their money immediately if a bank fails - if savers abide by the deposit limits.
This is increasingly important as consumers' accounts grow in size, especially those earmarked for retirement, and as financial institutions nationwide struggle amid rising mortgage loan delinquencies and tighter credit markets that have made it harder for banks to raise cash.
Bert Ely, a banking consultant and specialist in deposit insurance who is based in Alexandria, Va., noted that in recent years, the strong economy has made it possible for faltering banks to be purchased by sound banks, with no losses to depositors.
In the current financial climate, however, troubled institutions will probably be left to fail, Ely said.
"That has renewed interest in looking at how deposit insurance works and what the limits are," he said. "And that's healthy."
According to the FDIC, the basic insurance amount is $100,000 per depositor per insured bank. This limit applies to individual and joint accounts as well as some trust accounts. Earlier this year, Congress approved an increase to $250,000 in coverage for some retirement accounts, including Individual Retirement Accounts.
Kathy Nagle, chief of the deposit insurance section in the consumer protection branch at the FDIC in Washington, D.C., said small savers generally don't have to worry about the limits.
"If the sum total of all your money at a bank is $100,000 or less, you don't have to worry about all these categories, you're fully insured," Nagle said. "If it's more than that, you can be fully insured - but you need to get into asking questions about whether you're allocating your money to different categories of coverage."
When looking at those categories, she said, "it's best to think about it per account owner, not by type of account."
She gave this example of a married couple and their insurance coverage at their hometown bank:
• The wife has $100,000 in her name in several savings accounts.
• The husband has $100,000 in his name in a separate savings account.
• The couple has $200,000 in a joint account with equal withdrawal rights.
• Each of them has an IRA, with $250,000 in each account.
In this case, everything is covered by FDIC insurance, she said.
Things get more complicated if the deposits are in so-called revocable trust accounts, also known as payable-on-death accounts or living trusts.
"The owner is insured up to $100,000 for the interest of each qualifying beneficiary," Nagle said. These beneficiaries can include spouses, children, siblings and some others.
Savers can check on their coverage by going to the FDIC Web site at www.FDIC.gov and using the Electronic Deposit Insurance Estimator, or EDIE, to check on whether their accounts qualify for insurance coverage, she said.
"If it involves setting up a living trust, which can be quite complex, people can always call us for help," Nagle said. The FDIC's toll free hot line is 877 275-3342 (877 ASK-FDIC).
The insurance limits are the same for credit union accounts. The National Credit Union Share Insurance Fund, which is an arm of the National Credit Union Administration, maintains an insurance estimator at www.ncua.gov.
Ely, the banking consultant, said that savers "need to be prudent about this, particularly in smaller banks because they're the ones most likely to fail."
Consumers have choices, he added.
"Spread your money around - put it in different institutions so you're not over the limit," he suggested.
