7 Things Seniors (and Everyone Else) Need to Know About FDIC Insurance

 7 Things Seniors (and Everyone Else) Need to Know About FDIC Insurance

FDIC Insurance

Older Americans put their money…and their trust…in FDIC-insured bank accounts because they want peace of mind about their hard-earned savings over the years. Here are some things seniors need to know and remember about FDIC insurance.

 7 Things Seniors Need to Know About FDIC Insurance

1. The basic limit of the insurance is $100,000 per depositor per insured bank. If you or your family have $100,000 or less in all of your deposit accounts at the same insured bank, you don't need to worry about your insurance coverage.

Your funds are fully insured Your deposits at separately licensed banks are separately insured, even if the banks are affiliated, for example, if they belong to the same parent company.

2. You may qualify for more than $100,000 in coverage at an insured bank if you have deposit accounts in different ownership categories.

There are several different ownership categories, but the most common for consumers are Sole Ownership Accounts (for one owner), Joint Ownership Accounts (for two or more people).

Self-Directed Retirement Accounts (Individual Retirement Accounts and Keogh accounts for which you choose how and where the money is deposited) and revocable trusts (an escrow account that says the funds will pass to one or more designated beneficiaries when the owner dies).

Deposits in different property categories are separately insured That means one person could have much more than $100,000 of FDIC insurance coverage at the same bank if the funds are in separate ownership categories.

3. A death or divorce in the family can reduce FDIC insurance coverage. Let's say two people have an account and one dies.

FDIC rules allow a six-month grace period after the death of a depositor to give surviving or executors the opportunity to restructure accounts.

But if you don't act within six months, you risk having your accounts exceed the $100,000 limit.

Example: A husband and wife have a joint account with a "right of survivorship," a common provision in joint accounts that specifies that if one person dies, the other will own all of the money.

The account is worth $150,000, which is fully insured because there are two owners (giving them up to $200,000 of coverage).

But if one of the two joint owners dies and the surviving spouse does not change the account within six months, the $150,000 deposit would automatically be insured to just $100,000 as the surviving spouse's sole proprietorship account, along with any other accounts in that category.

in the bank. The result: $50,000 or more would be over the insurance limit and at risk of loss if the bank failed.

Also note that the death or divorce of a beneficiary on certain trust accounts may reduce insurance coverage immediately There is no six month grace period in those situations.

4. No depositor has ever lost a single penny of FDIC-insured funds as a result of bankruptcy.

FDIC insurance only comes into play when an FDIC-insured banking institution goes bankrupt.

And fortunately, bank failures are rare today This is largely because all FDIC-insured banking institutions must meet high standards of financial soundness and stability.

But if your bank were to fail, FDIC insurance would cover your deposit accounts, dollar for dollar, including principal and accrued interest, up to the insurance limit.

If your bank goes bankrupt and you have deposits above the federal insurance limit of $100,000, you may be able to recover some or, in rare cases, all of your uninsured funds.

However, the vast majority of depositors at failed institutions are within the $100,000 insurance limit.

5. The FDIC's deposit insurance guarantee is rock solid. As of mid-2005, the FDIC had $48 billion in reserves to protect depositors.

Some people say they've been told (usually by investment sellers who compete with bank deposits) that the FDIC doesn't have the resources to cover depositors' insured funds if an unprecedented number of banks fail. That is false information.

6. The FDIC pays depositors immediately after an insured bank fails. Most insurance payments are made within a few days, usually the next business day after the bank closes.

Don't believe the misinformation spread by some investment sellers that it takes years for the FDIC to pay out insured depositors.

7. You are responsible for knowing your deposit insurance coverage.

Know the rules, protect your money.