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Pros and Cons of FDIC-Insured Assets and Other Savings Vehicles

Coins resting on top of paper money.Is it safest to have your assets in an FDIC-insured bank or to look at other savings vehicles as part of your life planning and financial strategy?  

The Federal Deposit Insurance Corporation was established in 1933 to protect consumer deposits with the full faith and credit of the U.S. Government. In the unlikely event of a bank failure, the FDIC automatically insures deposit accounts in several ownership categories up to a certain dollar limit. 

The standard insurance coverage amount is $250,000 per depositor, per insured bank, for each account ownership category. If a depositor has more than $250,000 in assets, some of their deposit may not be insured. However, if a depositor has a variety of accounts and/or beneficiaries, those accounts considered as a whole can have higher total insured limits.

Here is a summary of accounts that are covered and not covered as well as options available to you if you have large or complex assets. Our trust and estate planning professionals can help you identify areas where you may be underinsured and help you develop a financial strategy that fits you. 

FDIC Deposits Covered and Not Covered

When you open a bank deposit account in any of several identified ownership categories, FDIC insurance covers the deposited amount dollar-for-dollar, including principal and any accrued interest up to the insurance limit. 

Covered deposit accounts include:

  • Checking accounts
  • Savings accounts
  • Negotiable Order of Withdrawal (NOW) accounts
  • Money Market Deposit Accounts (MMDA)
  • Time deposits such as Certificates of Deposit (CDs)
  • Cashier’s checks, money orders and other official items issued by the bank

Funds deposited at different branches of the same insured bank are not separately insured up to the $250,000 limit, but deposits held at separately chartered, insured banks are insured independently.

Deposits not covered by FDIC insurance include:

  • Stock investments
  • Bond investments
  • Mutual funds
  • Life insurance products
  • Annuities
  • Municipal securities
  • Safe deposit boxes or their contents (insurable through homeowners or renters insurance personal property endorsements)
  • U.S. Treasuries bonds, bills or notes (already covered by the U.S. government)

Even if you purchase investment products through a brokerage affiliated with an FDIC-insured bank, they do not qualify for FDIC coverage. However, there are several ownership categories that relate to retirement, health benefits and education that are FDIC-insured, and they can in fact help a depositor receive coverage above the $250,000 limit. They include:  

  • Single accounts
  • Joint accounts
  • Certain Retirement Accounts (excluding 403(b) plans)
  • Revocable Trust accounts
  • Irrevocable Trust accounts
  • Employee Benefit Plan accounts
  • Corporation/Partnership/Unincorporated Association accounts
  • Government accounts 

Strategies to Protect Your Savings 

Depending on the type of accounts and the ownership categories under which they fall — as well as whether the accounts have named, qualified beneficiaries — depositors can have some or all of their deposits covered by FDIC insurance. Each depositor’s situation should be evaluated to determine the true level of coverage. If some deposits are uninsured, then the excess uninsured money can be deposited into another FDIC-insured bank or deposited into an account of another ownership category. 

For example, you could create a Revocable Trust Account at your bank, which can increase your FDIC insurance coverage limits by $250,000 per named, qualified beneficiary. 

You may also consider other investment vehicles outside of FDIC-insured accounts such as life insurance or money market mutual funds that help you manage risk while allowing for more savings. 

Contact us as WhippleWood regarding questions about your personal or business banking strategies and how to protect your assets for the future. 

Source: FDIC.gov


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