Until recently, I suspect that not many of us had thought much about the Federal Deposit Insurance Corporation (commonly known as the “FDIC”) and the insurance protections it provides.  While we have all heard the important catchphrase “FDIC Insured”, who among us has looked into what it really means to individuals and businesses alike?

            The substantial downturn in the stock market and other investments (real estate, for example) has caused many investors to seek out safer places for their money.  At the same time, however, serious problems in the financial markets (including several bank failures) have spooked many people, and have raised concern as to whether their hard-earned money would continue to be safe in the banks where they had been customers for years. 

            The FDIC insures deposits in most banks and savings associations located in the United States.  It protects depositors against the loss of their deposits if an FDIC-insured bank or savings association fails.  To check whether a bank or savings association is insured by the FDIC, call toll-free at 1-877-275-3342 or use “Bank Find” at www.fdic.gov/deposit/index or look for the FDIC official teller sign where deposits are received.  For simplicity, the term “insured bank” as used in this article means any bank or savings association covered by FDIC insurance. 

            FDIC insurance covers all types of deposit accounts received at an insured bank, including checking, savings, money markets, CDs, and certain types of self-directed retirement accounts (including all types of IRAs, if held at an insured bank).  The FDIC does not insure money invested in stocks, bonds, mutual funds, life insurance policies, annuities, or municipal securities, even if these investments were purchased from an insured bank.  The FDIC does not generally insure assets in an employer-sponsored retirement plan, which plans are regulated by way of a federal law called the Employee Retirement Income Security Act, commonly known as “ERISA”.  The FDIC does not insure U.S. Treasury bills, bonds, or notes, which are backed by the full faith and credit of the United States government. 

            Until October 2008, the FDIC covered deposits up to as much as $100,000.00 per account owner per insured bank.  For IRAs held at an insured bank, the coverage limit was $250,000.00 per account owner.  The financial system bailout legislation enacted in October raised the FDIC insurance limit on non-retirement accounts to $250,000.00 per account owner per insured bank.  Unfortunately, the increase in the FDIC insurance limit to $250,000.00 is temporary and will expire at the end of 2009.  Consequently, unless the higher coverage limit is made permanent by federal legislation enacted before the end of 2009, those presently taking advantage of the higher limits will need to restructure their accounts before then. 

            Deposits in separate branches of an insured bank are not separately insured.  Deposits in one insured bank are insured separately from deposits in another insured bank.  When two insured banks merge (such as when troubled banks are acquired by healthier banks), the deposits from the acquired bank continue to be insured separately for at least six months after the merger (different time periods apply to CDs, based upon their maturity dates).  This grace period gives a depositor the opportunity to restructure his or her accounts, if necessary.  A person does not have to be U.S. citizen or resident to have deposits insured by the FDIC. 

            The FDIC insures accounts based upon the ownership of the account.  Each account has a different owner.  The FDIC regulations recognize eight different ownership categories:  single accounts, certain retirement accounts, joint accounts, revocable trust accounts (such as informal payable-on-death accounts and formal living/family trust accounts), irrevocable trust accounts, employee benefit plan accounts, corporation/partnership/unincorporated association accounts, and government accounts.  If the accounts are set up properly, each is covered under its own $250,000.00 (for now) insurance cap. 

            If you presently hold considerable bank deposits (perhaps because you have chosen to “sit on the sidelines” hoping that the stock market will stabilize), you can, with a little planning, significantly increase your FDIC insurance coverage, even if you keep all your deposits in a single insured bank.  For example, you and your spouse could own individual accounts holding $250,000.00 each, plus a joint account holding $500,000.00 (in our example, the husband’s ownership share in a joint account is insured up to $250,000.00 and the wife’s ownership share is also insured up to $250,000.00), and the $1,000,000.00 would be fully insured by the FDIC.  This same arrangement could be established at a second insured bank and, again, the $1,000,000.00 deposited in the second insured bank would be fully insured by the FDIC. 

            It is important to note that federal law expressly limits the amount of insurance the FDIC can pay to depositors, and no representation made by any person can increase that coverage.  For an interactive worksheet that will help you to determine the extent to which any of your deposits are uninsured, you can visit the FDIC’s Electronic Deposit Insurance Estimator (fdic.gov).  Also, Bankrate.com’s Safe & Sound ratings will give you an idea as to the financial health of your bank.