As the federal government has taken over more than ten failed banks this year, panicked consumers are wondering how to ensure their bank deposits are adequately protected by Federal Deposit Insurance Corporation (“FDIC”) insurance.

Under the new law, you are entitled to $250,000 of FDIC insurance on each account titled solely in your name, and up to $500,000 in coverage for all jointly titled accounts ($250,000 for each owner). A “joint trust” will not be considered a “joint account” for FDIC purposes, instead it will be classified as a revocable trust to determine insurance protection.

Coverage greater than $250,000 is eligible for “pay-on-death” accounts (also known as “transfer-on-death” accounts) and more formal revocable living trust accounts. There is insurance coverage of $250,000 for each beneficiary of a revocable living trust, up to a maximum of $1,250,000. However, if the trust account balance exceeds $1,250,000 and there are more than five beneficiaries, insurance coverage is the greater of $1,250,000 or $250,000 per beneficiary.

Traditional IRAs, Roth IRAs, SEP-IRAs, Simple IRAs, and Keoghs are insured up to an aggregate of $250,000. The coverage of these accounts is not aggregated with any other coverage. However, if you have an inherited IRA, and your own IRA, you will have $250,000 of insurance on each.

Deposits owned by a business entity are insured up to $250,000. This insurance is separate from the insurance that any business owner might have on his/her own personal accounts. Further, business accounts that are merely labeled differently or used for different purposes, are not separately insured.

How to protect your deposits

Many depositors often exceed the $250,000 limit, especially to meet payroll. Instead of using multiple banks to have FDIC insurance for all monies, a person or entity with more than $250,000 can use the Certificate of Deposit Account Registry Service (“CDARS” pronounced “cedars”). Banks that participate in the CDARS program will accept your lump-sum deposit and buy CDs issued by other banks in increments of up to $250,000. You would have FDIC insurance for each CD invested at the other banks (because less than $250,000 would be on deposit with the bank). The primary benefit of this program is that you only have to interface with one bank, you receive one bank statement showing all your investments, and most important, all your monies are insured. Banks understand that your balance may fluctuate above and below the $250,000 limit. In this case, as a CD matures you can either reinvest or withdraw the money. Then, as you deposit new funds, the bank will invest in another institution to make sure you maintain FDIC insurance for all your deposited monies.

If you have large deposits at one or more banks, we urge you to fully understand the exact insurance protection available so you do not suffer any losses if your bank fails.

For further information regarding these matters, please contact Mr. Goldberg at 248.740.5664 or click here to send an email.