Facts about FDIC and NCUA

Jason - #1, Tuesday, May 30, 2006 - 11:09 PM CT

One thing I've always wondered is what if the interest put you over the 100k mark but your principle was under the limit would you still get all of the interest. ie is the cap the total amount of just the prinicple?

Banking Guy - #2, Wednesday, May 31, 2006 - 8:39 AM CT

Assuming that you have only one non-IRA account ownership category (ie. $100K limit), I think any amount (including interest) over $100K would not be insured and could be subject to loss.

Anonymous - #3, Saturday, September 16, 2006 - 12:47 PM CT

What's written above re using a revocable trust, aka "POD", to gain more insurance is true. But be VERY cautious. Allow me to demonstrate with an example the problem you could encounter:

You open a three year CD in trust for your sister because you need the added $100K of deposit insurance protection derived thereby. But a year into the CD your sister passes away unexpectedly. Believe it or not, from the instant she dies you have NO INSURANCE! In particular you do not, as you might assume and expect, have coverage until the CD matures. When your beneficiary dies you have three choices: Name another qualified beneficiary immediately or . . . pay your penalty (if any) and withdraw your funds or . . . run the risk being without deposit insurance brings. I have this from an FDIC lawyer. I do not know with certainty it also works this way with the NCUA. Be careful.

Banking Guy - #4, Sunday, September 24, 2006 - 5:41 PM CT

Good point about the POD and if your beneficiary dies. It would be nice if a bank would allow a penalty-free withdrawal due to the death of the beneficiary (similar to what's allowed with a death of the owner).

It does seem to complicate matters when you go above the $100K limit even with PODs. Here's an example of when the bank Superior FSB went under. Here are FDIC records for this case.

Note the following:

At the time of closing, Superior had approximately $1.7 billion in over 91,000 deposit accounts. Of this total, approximately 94 percent of the accounts totaling $1.4 billion were initially determined to be fully insured and transferred to New Superior. The remaining six percent of the accounts, totaling $281 million, were considered potentially uninsured funds that required further FDIC review. The FDIC's toll-free call centers have handled over 60,000 customer inquiries through September 28. Currently, the FDIC has determined that an additional $200 million of the $281 million in deposits is insured and these funds have been released to depositors. Four percent of the $1.7 billion in total deposits have been determined to be uninsured - a total of $64 million. The FDIC is still gathering information from depositors to review insurance coverage for the remaining $17 million in deposits to determine if those deposits may be insured. The FDIC continues to work with depositors to resolve the remaining claims and make certain that insured depositors are protected.

The point of the above is that when you deposits are above $100K and you depend on PODs, it may take longer for the FDIC to reimburse you. I wonder if these potentially insured deposits that were investigated were POD accounts and the FDIC had to confirm that the beneficiaries were alive and were the proper relations.

Anonymous - #5, Thursday, February 15, 2007 - 7:36 PM CT

When a beneficiary on a POD account passes away, the account does not become some kind of special uninsured account. For insurance purposes, it is treated as an individual account and combined with all of the owner's other individual accounts for insurance purposes.

If that leaves the owner over $100k in individual accounts at the same bank, the owner has one other option: remove some money from one of the owner's other individual accounts. So, for example, if you have an individual money market account, you could take money out of it instead of breaking the CD account in order to get your individual accounts down under $100k.