And the funny part is that this is all on the FDIC website.
By the way… if you’re looking for one place that will help you pull all of this retirement stuff together, then check out the Retirement Adventure Club.
So, with all this bank mess that’s going on in banking right now, plenty of people are starting to worry about the health of their bank. Nothing is ever certain in life, but I think that it’s not time to stress over your bank right now. I made a video that goes into why; I’ll link to it in the show notes.
But the other question that’s come out of all this concerns the FDIC insurance limits. The shocking detail around the Silicon Valley Bank failure was that there were quite a few depositors who were well over the FDIC insurance limit. Fortunately for them, the FDIC decided to guarantee them anyway to keep the public in general from freaking out. I guess everyone is still shell-shocked from 2008?
What Are the FDIC Insurance Limits?
There are a couple of parts to the limits of what the FDIC insures at a bank. First, there’s a coverage limit of $250,000 per depositor, per insured bank, for each account ownership category, which leads us to the next part:
There are several different account ownership categories. These could be single accounts, joint accounts, trust accounts, et cetera.
So, if you want to increase the amount you can have that’s FDIC insured at one bank, you have some options when it comes to how the accounts are set up.
Let’s take a look at this example from the FDIC’s website.
Paul and Barb bank with GloboBank. Here’s how their accounts are set up:
- Paul has $250,000 in a single account in his name,
- Barb has $250,000 in a single account in her name,
- They have $500,000 in a joint account,
- Paul has $250,000 in a revocable trust account with Barb listed as the beneficiary,
- Barb has $250,000 in a revocable trust account with Paul listed as the beneficiary,
- They have $1.5 million in an account owned by their joint living trust that names their three children as equal beneficiaries,
- Paul has $250,000 in his GloboBank IRA, and
- Barb has $250,000 in her GloboBank IRA.
When you add all that up, the total comes to $3.5 million dollars.
And guess how much is FDIC insured? All of it.
So, let’s get into the details. The first two accounts make sense. They’re individual accounts (or “single accounts” in FDIC parlance) that hold the $250,000 limit. Easy enough.
Next is the joint account. Since it’s a different type of ownership category, Paul and Barb get another $250,000 of insurance limit each. So, the $500,000 in this account is FDIC insured.
Next, come the trusts. But this is where it gets a little complicated.
- For revocable trusts, there’s a $250,000 FDIC insurance limit per each unique beneficiary, so long as:
- The account is titled in the trust’s name,
- The beneficiaries are named in either the deposit account records or the trust document, and
- A beneficiary must be a living person, charity, or non-profit organization, as defined by the IRS.
Of course, the FDIC is a government program, so you know there are more rules!
If a revocable trust has five or fewer beneficiaries, then the FDIC will insure up to $250,000 per beneficiary. And they look at “revocable trusts” as one type of account category.
So, for Paul and Barb, when we add up their total trust assets, we get a total of $2 million – $1 million each.
And so let’s see how that divides up among their beneficiaries. For Paul’s share of the trust, his $1 million will end up going equally to Barb and their three children. That comes out to – you guessed it – $250,000 each.
The same goes for Barb’s share of the trust assets. Her $1 million will go in equal parts to Paul and their three children – and each $250,000 share is FDIC insured.
That brings us to their IRAs. For certain self-directed retirement accounts, up to $250,000 in FDIC deposit insurance is available.
Now, one thing to note here is that the types of things insured in the IRA do not change. A self-directed IRA that has a $250,000 CD from an FDIC-insured bank will be covered whereas $250,000 invested in mutual funds will not. Self-directed IRAs aren’t common, by the way.
So, when you add it all up, Paul and Barb have $3.5 million at GloboBank – and it’s all FDIC insured. They knew the rules! I will say quickly to consult with your estate planning attorney before setting up any trusts. Let’s not let the FDIC tail wag the estate planning dog.
Also, we didn’t even touch on some of the other ownership categories, such as:
- Irrevocable trusts,
- Employee benefit plan accounts,
- Corporation, partnership, or unincorporated association accounts, and
- Government accounts.
So, there are even more opportunities to maximize your FDIC insurance limit, even at the same bank.
So, the question is… should you? How much cash is the right amount for you? Click here to find out.
If you need help figuring out how to structure your cash savings, then click here to set up a quick, complimentary introduction call to see if Prana Wealth is a good fit. We do still have the capacity to take on new clients.
As a fee-only financial advisor in Atlanta, we can (and do) work virtually with clients all across the U.S. and we’re here to help you when you’re ready.