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What is the FDIC Insurance for your Personal Accounts

By April 14, 2020 No Comments

What is the FDIC?

The Federal Deposit Insurance Corporation or the FDIC, is a government agency that insures deposits in the United States in the unlikely event that the bank should fail. Learning about how the FDIC works can help you make decisions about which account types will be most beneficial to you. I am going to walk you through the basics so that you can have a better understanding of how to structure your own accounts.

Not in the mood to read? The FDIC has a clear, concise video that will walk you through how deposit insurance coverage works here:

What types of accounts are covered by the FDIC? 

The FDIC covers three different types of personal accounts.


Joint Accounts

The first type is joint accounts. Joint accounts are any accounts that are owned by two or more people with no named beneficiaries. Each owner of this type of account has equal rights to the account. The FDIC will cover up to $250,000 in joint accounts for each account owner.

If Joe and his wife Ann have $550,000 in their joint account, Joe is covered for $250,000 and Ann is covered for $250,000, meaning, $500,000 in this account is insured. Both Joe and Ann are not covered for the remaining $25,000 each. 

If Joe and Ann have multiple joint accounts at the same bank, these accounts are added together. Let’s say Joe and Ann have another joint account with $75,000 in it. The FDIC will add the $75,000 to the other account with $550,000, totalling $625,000. Joe and Ann are each insured for $250,000. $500,000 of the total $625,000 is covered. Both Joe and Ann are not covered for the remaining $62,500 each, leaving $125,000 of their joint accounts uninsured.


Single Accounts

Single accounts are also covered by the FDIC up to $250,000. Single accounts are deposit accounts owned by one person without any named beneficiaries. Single accounts include accounts that were set up by an agent, business accounts for sole proprietorships, and accounts representing the funds of someone who is deceased.

Like with joint accounts, the FDIC will add together all single accounts held at the same bank, and cover up to $250,000 of the total. 

If Joe has another single account with $225,000 in it, he is fully covered because the total is less than the $250,000 limit.


Self-Directed Retirement Accounts

Self-directed retirement accounts are another account type covered by the FDIC. Self-directed retirement accounts include both individual retirement accounts and self-directed defined contribution plans such as 401Ks and profit-sharing plans. Like joint and single accounts, these account types are insured up to $250,000. 

If Ann has a 401K with $100,000 in it and a traditional Roth IRA with $100,000 in it, her accounts are fully covered. Combined, the two accounts total $200,000 which falls below the FDIC limit of $250,000.

Why is this important?

Understanding how the FDIC works is important for determining how to structure and protect your accounts. If you structure your accounts correctly, you can protect the maximum amount of your assets. Leaving your assets unprotected is a risky move, and entirely preventable through the right financial planning strategy.

I am happy to discuss your situation with you and help you structure your accounts in order to protect as much of your liquid assets as possible. Please contact me should you have any questions about your account coverage.