The Federal Government has prepared a list of banks that are in financial crisis or potential trouble. Several banks have failed this year, and it is certainly prudent to investigate as to whether all of the deposits you have in a bank are in fact insured.
The Federal Deposit Insurance Corporation (FDIC) insures each depositor up to $100,000.00. Some states have special funds, such as thrift institutions or savings banks, which have additional insurance available to cover the excess of those deposits.
In any event, you should always review a bank's financial health before making a deposit if your total deposits in that bank are in excess of $100,000.00. It is also important to keep in mind that accruing interest becomes a deposit, so if the interest is not being spent, but added to the bank account or certificate of deposit (CD,) it becomes part of the total.
In reviewing the FDIC data, it is important to clarify the type of account which is opened. Since only $100,000.00 per institution is insured, if you have more than this amount, you may open separate accounts at different institutions to assure insurance coverage.
If an account is owned jointly, each individual on that joint account is insured up to the $100,000.00 coverage. For instance, if a husband and wife have a joint account at the bank, they will each have a $100,000.00 level of protection, or in the aggregate, $200,000.00.
However, if you have an account in a revocable trust, that amount is insured up to only $100,000.00 regardless of how many beneficiaries are provided for in the Trust. Some may be contingent beneficiaries, and in most cases, the revocable trust names only the creator of the trust as the beneficiary.
IRA accounts are insured up to $250,000.00 and considered separately from any other accounts that are construed to be non-retirement accounts.
If you have a certificate of deposit that has been purchased through a brokerage firm, then the insurance will run through the brokerage firm. In many cases, it includes a total of $500,000.00 of protection of assets in the brokerage account.
You might also have an account at an institution that is held in a trust. In this situation, the trust department of the bank invests the funds, but these funds are not part of the bank's assets. Therefore, they aren't insured under the policy of the FDIC or any other insurance. In the unfortunate event of a bank's failure, these assets should not be at risk though, since they are still the property of the creator or beneficiary of the trust. But, to the extent that the bank has invested these assets within itself such as CDs or other bank accounts, they will be under the umbrella of insurance and could be at risk if the total sum exceeds the insured sum.
It is common for a bank to ask you upon opening a new account, whether you want to have another co-owner on the account. The co-owner should be aware that if they have other accounts, this additional deposit could jeopardize the total amount of insurance available.
Again, it is always good to determine the financial well-being of the bank before making any deposits, especially those that may be in excess of any insurance coverage. When in doubt, you may review the statement of condition of the bank to determine the level of financial security and stability of the bank.
by: Hyman G, Darling, Esq.
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