- FDIC insurance limit of $250,000 per depositor is now permanent.
- FDIC helps depositors to ensure that accounts are properly set up.
- Insurance doesn't cover bad advice on how to establish accounts.
Bank depositors should sleep better at night -- without sleeping on their money in a mattress -- now that the federal government has permanently boosted bank deposit insurance to $250,000.
The limit was raised from $100,000 to the current level in October 2008, but the rise was set to revert back Dec. 31, 2013, until the Dodd-Frank Wall Street Reform and Consumer Protection Act made the higher amount permanent, according to David Barr, a spokesman for the Federal Deposit Insurance Corp.
The higher FDIC limit is good news for people who keep large sums in bank deposit accounts or need to park a large sum in an account for a short time -- for instance, after they have sold a home, received an inheritance or cashed out a company 401(k) retirement account.
The fact that the limit is now permanent means those who've properly set up their accounts won't have to regroup to cope with a lower limit in the future, according to Todd Sandler, head of product strategy at ING Direct, an online banking institution in Wilmington, Del.
FDIC Insurance Misconceptions
Not all financial products are FDIC-insured. Generally, checking, savings, trust and money market deposit accounts, individual retirement accounts, or IRAs, and certificates of deposit, or CDs, are insured up to $250,000 per depositor if they're held in accounts that meet the FDIC-insurance rules at an FDIC-insured bank.
Investment products such as mutual funds, annuities, life insurance policies, stocks, bonds and money market mutual funds aren't FDIC-insured. Nor are deposits of any kind at non-FDIC-insured institutions.
The biggest misconception about FDIC insurance is that it applies at the account level -- when in fact it applies at the depositor level, Sandler says. Here are two examples:
- A depositor who had 10 individual bank accounts of $25,000 each for a total of $250,000 at one bank would be fully insured up to $250,000. However, a depositor who had three individual accounts of $250,000 each for a total of $750,000 at one bank would be insured only to $250,000 and not to $750,000.
- A husband and wife who have one individual bank account of $250,000 each for a total of $500,000 and one joint account of another $500,000 at one bank would be fully insured to the total of $1 million. But a fourth account at the same bank might not be insured, depending on the type of account and the way the account was held. Customers whose accounts reach this level of complexity should call the FDIC to get expert advice that's tailored to their own situation.
Another misconception involves the order of names on the account. The order of names on a joint bank account doesn't affect the amount of FDIC insurance, Barr says. For example, a joint account held by John Smith and David Jones is identical, for insurance purposes, to a joint account held by David Jones and John Smith. Joint bank accounts must be held with equal ownership to be FDIC-insured up to the $250,000 limit for each depositor. For example, a parent and child on a joint account must have the same capacity to withdraw the funds to maximize the FDIC protection.
The FDIC offers multiple ways for depositors to find out how to set up their accounts to maximize their protection:
- A toll-free consumer hot line, (877)ASK-FDIC or (877)275-3342, allows depositors to talk to a live person at no cost.
- An online customer assistance form allows depositors to ask questions or submit complaints by e-mail.
- An automated interactive online service, the Electronic Deposit Insurance Estimator, also known as "Edie," helps depositors analyze whether accounts are properly set up.
- Depositors can ask questions or submit complaints by mail to: FDIC, Attn: Deposit Insurance Outreach, 550 17th St. NW, Washington, D.C., 20429-9990.
No Recourse for Bad Advice
Depositors who have more than $250,000 in one banking institution are strongly encouraged to take advantage of those informational resources because mistakes can prove quite costly, Barr says.
"I've seen more and more people who have made basic assumptions on how deposit insurance works, and they were wrong and they lost money," he says. "Those are the hardest cases, because all it would have taken was to call our toll-free telephone number or to go online and ask Edie some questions. And just that few minutes would have saved people, sometimes, a considerable amount of money."
Moreover, depositors are responsible for their own bank accounts and there's no insurance for losses due to bad advice, Barr says.
"If your accountant before financial adviser or planner, or even a banker or your parents, tells you how to structure your accounts," Barr says, "and they aren't telling you the information correctly and something happens to your bank and you end up with uninsured money, there is no recourse for that deposit."