BANKING & BILL PAYING Insurance for Your Bank Accounts by Joan Goldwasser
The prospect of a bank failure may seem as far away as Bedford Falls, the idyllic little town where George Bailey saves the day in the Christmas classic, It's a Wonderful Life. But banks still really do fail in real life.
In 2000 and 2001, 15 banks failed, ranging in size from $2.3-billion Superior Bank, in suburban Chicago, to Malta National Bank, in Malta, Ohio, with a mere $9.5 million in assets. At Superior alone, uninsured deposits totaled $65 million. Clearly, it's time for a quick review of how federal deposit insurance works.
The shorthand is easy: The first $100,000 of your savings is insured. That's up to $100,000 in each bank or savings association. (Credit union accounts are insured by the National Credit Union Share Insurance Fund.) Depending on how you own your accounts, however, it's easy to squeeze extra insurance protection out of the Federal Deposit Insurance Corp. (FDIC) -- without spreading your money around to different banks.
Each owner's share of a joint account is insured up to $100,000. So an account owned jointly by a husband and wife would have $200,000 of protection. That's on top of the $100,000 of insurance if you own an individual account.
Your same-bank protection also rises if you set up payable-on-death accounts. The balance in each such account automatically goes to the designated beneficiary at your death. For each qualified beneficiary (on a single account or on separate accounts), you get an extra $100,000 of coverage. (Qualified beneficiaries include a spouse, child, grandchild, parent or sibling.) If you have three payable-on-death accounts -- say, for three children -- plus a joint account with your spouse plus an individual account, the FDIC insurance would reach $600,000.
Living trusts rarely qualify for this protection because FDIC rules require that beneficiaries receive the funds without condition, and most living trusts include conditions. For example, a stipulation that a child can't inherit until he or she is 21 would block the $100,000-per-beneficiary insurance.
Retirement accounts, such as IRAs, are insured separately from other types of accounts. So, each IRA account gets $100,000 of protection on top of the insurance for a nonretirement account. There's no extra protection based on the beneficiaries of your IRAs, though, so if your balance exceeds $100,000, you'll need to split it among different banks to guarantee 100% insurance.
GETTING STARTED
