On Friday, March 10, 2023, regulators shuttered the Silicon Valley Bank of Santa Clara, CA, and the Federal Deposit Insurance Corporation (FDIC) assumed control of the bank. By Sunday night, March 12, regulators also shut down another bank, Signature Bank of New York, to prevent a crisis in the broader banking system. The banks’ swift closures sent shock waves through Washington and Wall Street. Together, these two banks represented the 2nd and 3rd largest bank failures in U.S. history after Washington Mutual in 2008.
Approximately, 94% of the deposits in SVB bank were uninsured, and approximately 90% of the deposits in Signature bank were uninsured.1 Under normal circumstances this could mean that nearly all deposits might not have been recoverable by depositors. Subsequently, however, all deposit accounts at both institutions have been guaranteed, according to a joint statement released by the Federal Reserve, the Department of the Treasury and Federal Deposit Insurance Corporation. The fallout from the two bank failures is still reverberating throughout the country. It remains to be seen whether these bank failures may change the structure of the U.S. banking system and/or the FDIC insurance guarantees.
In view of these bank failures, now may be an appropriate time to review the FDIC insurance program. Under current law the FDIC protects depositors of insured banks located in the United States against the loss of deposits if an insured bank fails. The FDIC is an independent agency of the United States government, and FDIC insurance is backed by the full faith and credit of the U.S. government. No depositor has ever lost a penny of FDIC-insured deposits.2 Historically, the standard amount covered by FDIC insurance was $100,000. In 2010 this amount was increased permanently to $250,000. This $250,000 amount applies to each depositor per insured bank or credit union for each ownership category.3
Almost all U.S. banks and savings associations are members of the FDIC. Banks chartered overseas, including some internet banks, may not be FDIC insured To determine if a bank is FDIC-insured, you can ask a bank representative, look for the FDIC sign at your bank, call the FDIC at 877-275-3342, or you can use the FDIC's BankFind tool.4
Many individuals keep their money in credit unions rather than banks. The National Credit Union Administration (NCUA) is similar to the FDIC in that it provides insurance to all federal credit unions and state-chartered credit unions that apply for and meet insurance standards. Some state credit unions are insured by private insurance or guaranty corporations. The NCUA is an agency of the United States government. If you want to know if your credit union is NCUA-insured, you may use the tool Find a Credit Union5
The FDIC and the NCUA provide similar insurance coverage for their member organizations. They cover the same types of accounts and the same ownership categories for the same amounts. There are differences, however, particularly in the aggregation of retirement accounts that will be discussed later. The types of accounts that are eligible for FDIC or NCUA-backed insurance include checking accounts, negotiable order of withdrawal (NOW) accounts, savings accounts, money market deposit accounts (MMDAs), and certificate of deposit (CD) accounts.
Neither the FDIC nor the NCUA insure funds invested in stocks, bonds, mutual funds, life insurance policies, annuities or municipal bonds, even if these investments are purchased at an insured bank or credit union. Safe deposit boxes or their contents are not insured.6
The FDIC (NCUA) insures deposits that a person holds in one insured bank separately from deposits owned in another insured bank. For example, if Jason has a savings account in Bank 1 and another account in Bank 2, each account is insured separately up to $250,000.
The FDIC (NCUA) provides separate insurance coverage for funds that depositors may have in different categories of legal ownership. Thus, a customer who has accounts in different ownership categories in the same institution may qualify for more than $250,000 of coverage. The categories of ownership include the following:
- Single accounts
- Joint Accounts
- Certain retirement accounts
- Revocable Trust Accounts
- Irrevocable Trust Accounts
- Employee Benefit Plan Accounts
- Corporation/Partnership/Unincorporated Association Accounts
- Government Accounts
We will discuss most of these ownership categories and explain how FDIC or NCUA-backed insurance applies in a variety of situations. The last three categories mentioned above are beyond the scope of this study.
Single Accounts7
This is a deposit account owned by one person and held in that person’s name only, with no named beneficiaries. All single accounts at the same insured bank (or credit union) are added together and the total amount is insured up to $250,000.
Example: Jason has three single accounts at an FDIC-insured bank.
Account Title Deposit Type Account Balance
Jason Smith Money Market $ 15,000
Jason Smith Savings $ 20,000
Jason Smith CD $200,000
Jason’s Sole Proprietorship Checking $ 25,000
Total $260,000
Amount Insured $250,000
Amount Uninsured $ 10,000
Explanation:
Jason Smith has four single accounts at the same insured bank, including one account in the name of his business, which is a sole proprietorship. The FDIC insures deposits owned by a sole proprietorship as the single account of the business owner. The FDIC combines the four accounts, which equal $260,000, and insures the total balance up to $250,000, leaving $10,000 uninsured.
Joint Accounts8
This is a deposit owned by two or more people, with no beneficiaries designated. Each co-owner’s shares of the jointly-owned accounts at the same bank are added together and insured up to $250,000 per owner. To qualify as joint accounts, the owners must be natural persons, have equal withdrawal rights and personally sign the signature card. The FDIC or NCAU assume that all co-owners’ shares are equal unless the account records state otherwise.
Example: Jason and Mary Smith along with their son Bob have the following joint accounts at an FDIC-insured bank.
Account Title Deposit Type Account Balance
Jason and Mary Smith Money Market (MMDA) $230,000
Jason or Mary Smith Savings $250,000
Jason or Mary or Bob Smith CD $270,000
Total $750,000
FDIC Insurance coverage for each owner is calculated as follows:
Owner Ownership Share Amount Insured Amount Uninsured
Jason $330,000 $250,000 $ 80,000
Mary $330,000 $250,000 $ 80,000
Bob $ 90,000 $ 90,000 $ 0
Total $750,000 $590,000 $160,000
Explanation:
The total amount in each joint account is divided by the number of co-owners. Mary’s ownership share in all joint accounts equals 1/2 of the MMDA account ($115,000), 1/2 of the savings account ($125,000), and 1/3 of the CD ($90,000), for a total of $330,000. Since her coverage in the joint account ownership category is limited to $250,000, $80,000 is uninsured. John’s ownership share in all joint accounts is the same as Mary’s, so $80,000 of John’s deposits is uninsured. Bob’s ownership share in all joint accounts equals 1/3 of the CD, or $90,000, so his share is fully insured.
Certain Retirement Accounts9
Retirement accounts are deposit accounts owned by an individual and titled in the name of the individual’s retirement plan. Retirement accounts include the following:
- Individual Retirement Accounts (IRAs) including traditional IRAs, Roth IRAs, Simplified Employee Pensions (SEPs) and SIMPLE IRAs.
- Self-directed contribution plan accounts, such as self-directed 401(k) plans, self-directed contribution money purchase plans, or self-directed contribution profit-sharing plans. “Self-directed” means that plan participants have the right to direct how money is invested, including the option to place deposits in an FDIC-insured bank.
- Self-directed Keogh plans for self-employed individuals.
- Section 457 deferred compensation plan accounts.
Each worker’s deposits in retirement accounts at the same insured bank are added together and insured up to $250,000. Naming one or more beneficiaries to the accounts does not increase insurance coverage. A Roth IRA is treated the same as a traditional IRA in this ownership category. However, Coverdell Education Savings Accounts, Health Savings Accounts or Medical Savings Accounts are not included among certain retirement accounts; these accounts may be insured among other ownership categories, though. Coverdell accounts are aggregated with irrevocable trust accounts, and Health Savings accounts may be aggregated with single accounts or revocable trusts depending upon the account title.
Example: Retirement Accounts
Account Title Deposit Type Account Balance
Jason Smith’s Roth IRA CD $110,000
Jason Smith’s Traditional IRA CD $ 75,000
Total $185,000
Amount Insured $185,000
Amount Uninsured $ 0
Explanation:
Jason Smith has two different types of retirement accounts that qualify as Certain Retirement Accounts at the same insured bank. The FDIC adds together the deposits in both accounts, which equal $185,000. Since Jason’s total in all certain retirement accounts at the same bank is less than $250,000, his IRA deposits are fully insured.
There is a difference in the way NCUA-insured credit unions aggregate retirement accounts and the way FDIC-insured banks aggregate these accounts. FDIC rules aggregate Keogh plans for self-employed individuals with other retirement accounts; the total is insured up to $250,000. NCAU rules aggregate Keogh plans separately from other retirement accounts; IRA plans may be insured up to $250,000 and Keogh plans may be insured separately up to $250,000.10
Inherited IRAs
After the owner of an IRA has passed away, the account may continue to be titled in the name of the deceased. If an IRA continues to be maintained in the decedent’s name and continues to be recognized by the IRS as the decedent’s IRA, then the FDIC will insure the account for up to $250,000 as a retirement account of the decedent. If, however, the new account owner treats the IRA as his/her IRA, the funds may be added to other IRAs and insured in the aggregate. Changes have occurred in the treatment of inherited IRAs in recent years, and we suggest contacting the FDIC if you have questions regarding your particular situation.11
Revocable Trust Accounts12
A revocable trust account is a deposit account owned by one or more people that names one or more beneficiaries who will receive the proceeds of the account upon the death of the owner. The owner (aka grantor, settler, trustor) may terminate, change or revoke the trust. This ownership category includes both formal and informal trusts.
Informal trusts pertain to those accounts titled “payable of death” (POD), or “in trust for” or Totten trust accounts which are generally created when the owner signs a card directing the bank to pay the proceeds to a named beneficiary(ies) upon the owner’s death. There is no written trust agreement. Formal revocable trusts are written trusts providing for the disbursement of funds upon the owner’s death. The trust generally becomes irrevocable when the owner dies. If an owner has both formal and informal trust accounts, the accounts are aggregated for FDIC insurance purposes.
Deposit insurance for revocable trusts is provided to the trust owner as long as certain requirements are met. The account title must indicate that the account is held in a trust relationship, the beneficiaries must be named in the bank record or trust document, and the beneficiary(ies) must be a living person, charity or non-profit organization. The amount of FDIC or NCAU-backed insurance is dependent upon the number of beneficiaries named in the trust document, and in some instances, based upon the individual interests allocated to the beneficiaries.
If the trust account names five or fewer beneficiaries, the owner’s deposits are insured up to $250,000 for each beneficiary. The amount of FDIC or NCAU coverage is determined by multiplying $250,000 by the number of different beneficiaries, regardless of the dollar amount or percentage allotted to each beneficiary.
Example: Jason Smith has three POD accounts for his two children, Jerry and Janice.
Account Title Beneficiaries Deposit Type Account Balance
Jason Smith POD Jerry, Janice Money Market $ 10,000
Jason Smith POD Jerry, Janice Savings Account $ 20,000
Jason Smith POD Jerry, Janice CD $470,000
Total $500,000
Amount Insured $500,000
Amount Uninsured $ 0
Explanation:
Jason Smith has three revocable trust accounts at the same insured bank. For each of these accounts, Jason has named the same two unique beneficiaries. Maximum insurance coverage for these accounts is calculated as: one owner times two beneficiaries times $250,000 equals $500,000. Jason Smith is fully insured because his total balance does not exceed $500,000.
When there are multiple trust owners, each owner’s share of each trust account is added together, and the owner receives up to $250,000 of FDIC or NCAU-backed coverage for each different beneficiary.
Example: Jason and Mary have POD accounts for their two children, Jerry and Janice, and one grandchild, Lisa.
Account Title Beneficiaries Deposit Type Account Balance
Jason & Mary Smith POD Jerry, Janice CD $700,000
Mary Smith POD Janice and Lisa Savings Account $450,000
Owners Beneficiaries Owner’s Share Amount Insured Amount Uninsured
Jason Jerry, Janice $350,000 $350,000 $0
Mary Jerry, Janice, Lisa $800,000 $750,000 $50,000
Explanation:
Jason’s share: $350,000 (50% of Account 1)
Mary’s share: $800,000 (50% of Account 1 and 100% of Account 2)
Because Jason named two unique beneficiaries, his maximum insurance coverage is $500,000 ($250,000 times two beneficiaries). Since his share of Account 1- $350,000 - is less than $500,000, he is fully insured.
Because Mary has named three unique beneficiaries between Accounts 1 and 2, her maximum insurance coverage is $750,000 ($250,000 times three beneficiaries). Since her share of both accounts - $800,000 – exceeds $750,000, she is uninsured for $50,000.
When there are six or more different beneficiaries, and all the beneficiaries are entitled to equal portions of the trust proceeds, the insurance coverage is calculated in the same manner as it is when there are five or fewer beneficiaries. That is, each trust owner receives up to $250,000 of FDIC or NCAU-backed coverage for each different beneficiary. When there are six or more beneficiaries and they do not all have the same beneficial interest, the owner’s deposits are insured up to the greater of the following: (1) the sum of each beneficiary’s actual interest in the trust deposits up to $250,000 for each beneficiary, or (2) $1,250,000. Determining insurance coverage of a revocable trust that has six or more beneficiaries with unequal interests can be complex. The FDIC recommends you seek assistance in these situations.13
Contingent beneficiaries
FDIC deposit insurance coverage for revocable trust accounts is based upon the owners and beneficiaries alive at the time an insured depository institution fails. Furthermore, a living beneficiary must be a primary beneficiary—meaning that his or her interest in the trust does not depend on the death of another trust beneficiary. An alternate or contingent beneficiary – that is, an individual who would receive the trust deposits if another beneficiary were to die before the account owner – does not qualify as a primary beneficiary for FDIC deposit insurance purposes.14
Irrevocable Trust Accounts
Irrevocable trusts are trust arrangements in which the owner deposits money or property into the trust but gives up the power to change or revoke the trust. An irrevocable trust may also come into existence upon the death of the owner of a revocable trust. Revocable trusts that become irrevocable upon the death of the trust owner may continue to be insured under the rules for revocable trusts.
Insurance coverage for irrevocable trusts is provided to the beneficiary. All trust interests created by the same settler (grantor) in the same bank or credit union for the same beneficiary are added together and insured up to $250,000. In order to qualify for coverage, the trust must be valid under state law, the account records must show the existence of the trust relationship, the beneficiary’s interest must be identifiable and must not be a contingent interest as defined by the FDIC.15
Putting It All Together: Insurance Coverage for a Husband and Wife with Deposit Accounts in Multiple Ownership Categories16
Owner Ownership Category Beneficiary Maximum Insurable Amount
Husband Single Account $ 250,000
Wife Single Account $ 250,000
Husband and Wife Joint $ 500,000
Husband POD Husband Wife $ 250,000
Wife POD Wife Husband $ 250,000
Husband & Wife Liv Trust Revocable Living Trust 3 Children $1,500,000
Husband IRA IRA $ 250,000
Wife IRA IRA $ 250,000
Total $3,500,000
Explanation:
Single Account Ownership Category
The FDIC combines all single accounts owned by the same person at the same bank and insures the total up to $250,000. The Husband's single account deposits do not exceed $250,000 so his funds are fully insured. The same facts apply to the Wife's single account deposits. Both accounts are fully insured.
Joint Account Ownership Category
Husband and Wife have one joint account at the bank. The FDIC combines each co-owner's shares of all joint accounts at the bank and insures each co-owner's total up to $250,000. Husband's ownership share in all joint accounts at the bank equals 1/2 of the joint account or $250,000, so his share is fully insured. Wife's ownership share in all joint accounts at the bank equals 1/2 of the joint account or $250,000, so her share is fully insured.
Revocable Trust Account Ownership Category
To determine insurance coverage of revocable trust accounts, the FDIC first determines the amount of the trust's deposits belonging to each owner. In this example:
Husband's share = $1,000,000 (100% of the Husband's POD account naming Wife as beneficiary and 50% of the Husband and Wife Living Trust account identifying Child 1, Child 2, and Child 3 as beneficiaries)
Wife's share = $1,000,000 (100% of the Wife's POD account naming Husband as beneficiary and 50% of the Husband and Wife Living Trust account identifying Child 1, Child 2, and Child 3 as beneficiaries)
Second, the FDIC determines the number of beneficiaries for each owner. In this example, each owner has four unique beneficiaries (Spouse, Child 1, Child 2 and Child 3). When a revocable trust owner names five or fewer unique beneficiaries, the owner is insured up to $250,000 for each unique beneficiary. Husband's share of the revocable trust deposits is insured up to $1,000,000 ($250,000 times four beneficiaries = $1,000,000). Wife's share of the revocable trust deposits is insured up to $1,000,000 ($250,000 times four beneficiaries = $1,000,000).
Certain Retirement Account Ownership Category
The FDIC adds together all certain retirement accounts owned by the same person at the same bank and insures the total up to $250,000. The Husband and Wife each have an IRA deposit at the bank with a balance of $250,000. Because each account is within the insurance limit, the funds are fully insured.
FDIC Deposit Insurance Estimator
The FDIC has a free estimator on its website to allow bank depositors to determine if their accounts are fully insured. The estimator is called The Electronic Deposit Insurance Estimator and can be found at https://edie.fdic.gov/ It estimates the depositor’s insurance coverage for each type of ownership along with the total insurance coverage on a per-bank basis. The website has a tutorial to assist bank account owners in performing their calculations. A similar estimator for NCUA insured credit union accounts may be found at https://www.mycreditunion.gov/share-insurance-estimator-home
Conclusion
As you can see, determining whether bank deposits are fully insured is more complicated than it may seem at first glance. If you would like to know more about this topic or whether your own bank accounts may be fully insured, please feel free to contact us. Remember, we are here to help.
Doug Lemons, CFP®
3https://www.fdic.gov/resources/deposit-insurance/brochures/insured-deposits/
4https://banks.data.fdic.gov/bankfind-suite/bankfind
6https://www.fdic.gov/resources/deposit-insurance/brochures/insured-deposits/ and https://www.fdic.gov/resources/deposit-insurance/brochures/documents/your-insured-deposits-lp-english.pdf
7Ibid.
8Ibid.
9Ibid.
10https://www.ncua.gov/files/publications/guides-manuals/NCUAHowYourAcctInsured.pdf
11https://www.irahelp.com/forum-post/12217-inherited-iras-and-fdic-limits
https://www.fdic.gov/resources/deposit-insurance/faq/index.html
12https://www.fdic.gov/resources/deposit-insurance/brochures/insured-deposits/ and https://www.fdic.gov/resources/deposit-insurance/brochures/documents/your-insured-deposits-lp-english.pdf
13Ibid.
14https://www.fdic.gov/deposit/diguidebankers/documents/revocable.pdf
16Ibid.
CRN-5557471-032423