About Ken Tumin

Ken Tumin founded the Bank Deals Blog in 2005 and has been passionately covering the best deposit deals ever since. He is frequently referenced by The New York Times, The Wall Street Journal, and other publications as a top expert, but he is first and foremost a fellow deal seeker and member of the wonderful community of savers that frequents DepositAccounts.

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Maximizing Your FDIC Coverage with Beneficiaries

For long-time readers of this blog, you know there are many ways to have FDIC coverage of more than $250,000 at a bank. However, as I described in past posts, you have to be careful. If you or your bank makes any mistakes, your money above $250,000 may not be covered. If the bank fails, that uninsured money could be lost.

In my post yesterday in which I described two problem credit unions and provided some NCUA and FDIC resources, the reader Lou posted a useful comment about a little known aspect of the FDIC rules which can make it easy for people to insure up to $1.25 million. In this post, I’ll provide more details about this.

First, it’s important to understand the following FDIC rules. The details are described in this FDIC Comprehensive Seminar on Deposit Insurance Coverage For Bankers. Unlike the guide for consumers, this guide for bankers includes more details and examples which can be useful to ensure you understand all of the rules. The guide is dated March 23, 2011 so it includes the recent changes that have occurred in the last few years including the new higher standard coverage of $250,000. Below are excerpts from the guide starting on page 31.



Beneficiary Requirements

The owner and beneficiary no longer must meet the kinship requirement that each beneficiary must be related to the owner from one of the following five groups: parent, sibling, spouse, child, or grandchild

The beneficiary must be an eligible beneficiary as defined below:

  • A natural person (living)
  • A charity (must be valid under IRS rules)
  • A non-profit organization (must be valid under IRS rules)

Trust Relationship Must Exist in the Account Title

The required intention in paragraph (a) of this section that upon the owner's death the funds shall belong to one or more beneficiaries must be manifested in the “title” of the account using commonly accepted terms such as, but not limited to, “in trust for,” “as trustee for,” “payable-on-death to,” or any acronym therefor.

For purposes of this requirement, “title” includes the electronic deposit account records of the institution. (For example, the FDIC would recognize an account as a revocable trust account even if the title of the account signature card does not designate the account as a revocable trust account as long as the institution’s electronic deposit account records identify (through a code or otherwise) the account as a revocable trust account)

Coverage depends on the number of beneficiaries named by an owner and the amount of the deposit

The owner names five or fewer unique eligible beneficiaries and the total deposit(s) allocated to all beneficiaries combined is $1,250,000 or less, then the insurance coverage is:

  • Up to $250,000 times the number of unique eligible beneficiaries named by the owner. This applies to the combined interests for all beneficiaries the owner has named in all (both informal and formal) revocable trust deposits established in each bank
  • The result is the same as above even if the owner has allocated different or unequal percentages or amounts to multiple beneficiaries. To calculate the deposit insurance coverage, multiply $250,000 times the number of owners times the number of unique eligible beneficiaries



If the owner names more than five beneficiaries, it becomes more complicated. Refer to the FDIC reference if you’re interested in those details.

Easy Way to Insure up to $1.25 Million

For those trying to increase coverage above $250K, the last section is very important. The reader Lou noted this in the comments yesterday. It effectively makes it easy for you to have coverage of up to $1.25 million AND still have the ability to essentially leave it to just one beneficiary. There are two ways this can be done.

First, instead of equally dividing the money between beneficiaries, you can choose a custom allocation. For example, you can leave 99.6% to one beneficiary and 0.1% to each of four beneficiaries. Those other four beneficiaries could be friends or charities.

If the bank doesn’t allow you to divide the funds that will go to the beneficiaries in your own percentages, you can have separate accounts for each beneficiary. The FDIC will aggregate the accounts and treat them just as if they were one account.

I tested this out using the FDIC EDIE calculator with a fictional scenario. In this example, Ed Jones wants to cover $1.25 million, and he wants his wife Susan Jones to be the beneficiary who will receive all of his money when he dies. He sets up 5 CDs at the bank. The first CD has a balance of $1,249,600 with his wife as a beneficiary. The other 4 CDs have balances of only $100 each, and each has a separate beneficiary that meets the requirements as described above. I took a snapshot of the output of the EDIE calculator which shows that all $1.25 million is insured.

FDIC Coverage with 5 beneficiaries

Note, there is one problem with the above example. It doesn’t allow any interest that accrues to be insured. You want to make sure the account balances remain insured until maturity. So instead of starting at $1.25 million, you’ll want to start with a smaller balance such as $1.1 million.

Another important note is that there is no grace period when a beneficiaries dies. You lose coverage immediately. That is one benefit of naming non-profit organizations or charities as beneficiaries. I guess it’s possible that the organization could go out-of-business, but for large organizations, I would think the chance is small.

Finally, you cannot extend coverage with beneficiaries for IRAs or other retirement accounts. This is a separate category from revocable trust accounts. Thus, without any beneficiaries, you can be fully insured at one bank with $250,000 in an IRA and $250,000 in an individual account.

As I mentioned in my post yesterday, it’s up to you to ensure all of your money is FDIC insured. It doesn’t matter to the FDIC if your bank made a mistake. So make sure you fully understand the FDIC rules as described in this FDIC insurance reference. The FDIC has a consumer assistance number of 1-877-275-3342 if you need more help.

The NCUA has very similar rules for credit union deposit insurance. You can review those rules in this NCUA insurance reference, and you can check your deposits using the NCUA’s Insurance calculator. If you need more help, you can contact the NCUA Consumer Assistance Center between 8 a.m. and 6 p.m. (EDT) at 1-800-755-1030 (press 1 for share insurance questions).

Ally Bank

Ally Bank makes it easy to implement the above strategy. First, the CDs don’t have minimum balance requirements. Second, I was told by the customer service rep that they allow up to 10 beneficiaries. Third, I was told you can list non-profit organizations as beneficiaries in addition to persons.

When you’re logged into your Ally Bank account, you can view the details of each account in a separate page. That page has an account title field. In my experience with Ally, your beneficiaries won’t be listed by default in this account title field. If you call or use the secure email, Ally can have your beneficiaries listed in the account title field with the POD or ITF designation. Based on what the FDIC listed above, this might not be required for electronic deposit account records. Nevertheless, since it’s easy to do, I think it’s well worth the effort.

  |     |   Comment #1
Interesting thought about a minimal amount in additional accounts at the same bank in order to increase the coverage.

But let me ask: In your example, you used CDs and at $100. Is there a minimum amount required by the FDIC in the accounts in order to extend the coverage? For example, could I instead open a no-interest checking account with only $1 in it, or even zero in it, and that would extend the coverage another $250,000 overall at that bank? Maybe even have two or three of those at the same bank, if the bank allowed such? I personally would find that preferable to scattering CDs around at $100 each.
  |     |   Comment #39
Let's say you have one main beneficiary. To increase FDIC insured coverage, couldn't you just have 1 additional account (whether it be a savings, checking, or CD) with minimal funds and put on 4 beneficiaries onto that one account? Rather than having to create a separate account per additional beneficiary...
  |     |   Comment #42
Awesome idea!
  |     |   Comment #2
Don't forget you can extend your coverage at each institution by an additional $250,000 (ie, to $1.5 million) by opening an additional account with NO beneficiaries.

  |     |   Comment #35
This is not true, is per institution, not how many accounts you have
  |     |   Comment #40
The FDIC estimator says that is valid, as an account with no beneficiaries is treated as a Single Account separate from accounts with beneficiaries, which are lumped together as Revocable Trust Accounts.
  |     |   Comment #41
This is only true based on what type of accounts they are. You cannot open 5 savings accounts with the same titling and increase your FDIC limits
  |     |   Comment #3
me1004, It would certainly work if you use $1, however I am not sure about having no money in the account. Remember, you can only do this for POD or revocable trust accounts. Input the numbers in the FDIC calculator and see what happens. To poster 2, you are correct - you can add an individual account, a joint acount and increase the total insured to $2,000,000. Also, don't forget if you have two owners of a POD account with 5 beneficiaries, you can have up to $2,500,000 of coverage
  |     |   Comment #4
Ken, your example is one way of doing this, but if the credit union or bank allows you to have disproportionate interests in your POD account, you only have to open one CD. In your example, you would have one CD for $1,250,000 and assign a 99.6% interest for the beneficiary you want to leave the money to and .01% for each of the other 4 beneficiaries. Either way works and I have used both methods. Also, in your example, if you didn't want to have one CD of $1,249,600, you could break up this CD in smaller amounts as long as Susan Jones was the beneficiary for each account. The aggregate total insurance of $1,250,000 will not change.
  |     |   Comment #5
Go here to figure your limits :  https://www.fdic.gov/edie/index.html

example of a married "couple" (no kids)

1 CD 250K, POD to wife, 1 CD 250K POD to husband, 1 MnyMkt up to 500K = 1 million in one bank

So I would make the 2 CD's just under 250 taking in account the monthly interest I'd have going back to the MnyMkt which I would keep below the monthly input of inter test. If you go over, you than can always go to another bank to open another MnyMkt to move anything over flow. If the interest in the main bank is that good that is to keep that much there.

  |     |   Comment #6
Hey Ken, I reread your blog post and i saw that you did mention the disproportionate interest method. You have a done a great job of explaining the two methods. It can be a difficult concept, so thanks for the thorough explanation.
  |     |   Comment #9
Help please -

Assume the following -

1 - Husband has $250,000 CD and POD to wife

2 - Wife has $250,000 CD and POD to husband

3 - Husband has regular $250,000 IRA CD with wife as beneficiary.

All accounts are in same insured institutuion.

Question - Are all three accounts insured by the FDIC?

This is quite important so thanks in advance.



  |     |   Comment #10
Another reason to have a living revocable trust.  You can just set up the percentages yourself without having to negotiate them with the bank, plus you only need to make updates with the trust (whether you need to let the bank know of the updates depends on the bank).  For straightforward situations you can create a trust yourself (e.g., using the trust kit from Suze Orman, which sometimes you can find ways to get for free) rather than deal with the expense of a lawyer.
  |     |   Comment #11
To Poster 9:   Yes, you are insured for all the accounts.  I would keep less than $250,000 in each account, so as I earn interest, it will not cause your accounts to exceed the $250,000 threshold.
  |     |   Comment #12
To #9.

Better combination will be:

1 - Husband has $250,000 CD

2 - Wife has $250,000 CD

3-  Joint account $250,000 CD Husband and wife

4 - Husband has regular $250,000 IRA CD with no beneficiary.
Fran Quittel
  |     |   Comment #15
DEPOSITOR BEWARE: Dodd Frank and the Consumer Financial Protection Act notwithstanding, there is still NO requirement by the FDIC on itself or its member banks to inform depositors clearly on the following simple items which are critical to the depositor's correct performance of these calculations: 1. ALL deposits are insured under aggregated umbrella limits for the category and NOT each account separately; 2. if you exceed insured deposit limits (for example, by interest accrual), there is NO responsibility on the bank to tell the depositor about any funds over insured limits or if their paperwork is incorrect. In other words, your bank will alert you instantly if your checking account is overdrawn or you miss a mortgage payment because in THOSE scenarios, the bank is the lender. BUT if YOU become the lender to the BANK (which is the case when you are a depositor), the bank is under NO requirement to similarly inform. 3. When the paperwork is found to be in error, the FDIC and its member banks thrusts upon the depositor, the responsibility of correct paperwork. Bothe the FDIC and Consumer Protection Agency are certainly aware of these uncorrected issues; they have been around for some 20 years.
Anonymous #9
  |     |   Comment #16
To Lou and Anon #12 -

Many thanks to both of you!
  |     |   Comment #17
Great post Ken!  And great comments too--thanks Lou and others.
  |     |   Comment #19
Poster 18  The $250,000 insurance threshold is now permanent due to the Dodd-Frank Act. The language you cite predates that law.
  |     |   Comment #20
Thank you very much, Lou.

You are right. Here it is:

"The Dodd-Frank Wall Street Reform and Consumer Protection Act has made permanent the current SMDIA of $250,000. (The SMDIA was otherwise scheduled to return to $100,000 on January 1, 2014.)"


Why the heck does the FDIC still say otherwise almost a year later?

  |     |   Comment #21
People who buy CDs are cruising for a bruising.  Although the temporary cessation of QE-2 is coming, and that will temporarily shore up the U.S. dollar, inflation will still run much higher than any measly interest you are going to receive from opening certificates of deposits at American banks.  You are better off buying gold, silver or platinum, as soon as the prices get hit as a result of the temporary cessation of QE.

Let's face it...after the casino-banks like JP Morgan Chase, Goldman Sachs et. al. are finished closing their precious metals derivatives positions into the coming crash of metals prices, and buy up all sorts of other assets on the cheap from the new Great Depression that will be induced by the cessation of QE, they will be positioned to hyperinflate everything with no damage to themselves.  That is when gold will go to $15,000, silver to $1,000 and platinum to God only knows how high a level.

Right now, smart people WILL NOT invest in CDs, but will look, as always, for the highest paying totally liquid money market accounts, so they can escape from the U.S. dollar when the time is right, and everyone is claiming that the bull market in precious metals are finished, etc. etc.  Stay liquid folks!  And, don't be afraid to invest against the crowd.  Remember the the American "Ministry of Truth" (also known as the corrupt Federal Reserve) is trying to take your assets and transfer them to the casino bankers mentioned above.
  |     |   Comment #43
Price of Gold 5/20/2011 $1,490.75

Price of Gold 11/13/2018 $1,202.10

Nuf said.
  |     |   Comment #22
It says in the document link provided in the article that upon the death of a beneficiary there is a 6 month grace period.  This contradicts the comment in the article that says if a beneficiary dies the FDIC coverage is lost immediately.   Which is it??
  |     |   Comment #23
Anonymous #22, page 13 of the document on the 6-month grace period covers the account owner:

If an account owner dies, for the purpose of calculating deposit insurance coverage, FDIC provides a six-month grace period during which the account will be insured as if the account owner had not died

That's a different case than if the beneficiary dies. On page 40, it states:

Please remember there is no six-month grace period for the death of a beneficiary for revocable trust deposits. If there is no substitute beneficiary named when a primary beneficiary dies, the amount of deposit insurance coverage may decrease for this deposit
  |     |   Comment #24
My understanding is that the limit of $250,000 is specific to the beneficiary named.  So in the example in the post---only $250,000 of the $1,249,600 in cd 1 would be insured and $999,600 would be UNINSURED.  The $100 each in cd 2, cd 3, cd 4, and cd 5 would all be insured. So total insured amount would be $250,400 and the UNINSURED amount would be $999,600.

Only if all five of the cd's each had the name of all 5 beneficiaries (thus all titled exactly the same) would $250,000 be insured equally for each of the 5 beneficiaries (with the entire $1,250,000 then INSURED).

In summary, one owner cannot insure more than $250,000 TOTAL in any one beneficiaries name under the payable on death category. This is an extremely important point.  Please confirm or clarify.  Thanks.



  |     |   Comment #25
The reason I like to withdraw all interest in monthly or quarterly checks is that one does not have to be concerned with the interest accumulating and causing one to go over the insurance limits in case of a bank failure.  I can always know that I am within the allowed limits but of course I miss out on the interest accumulating and paying a bit more.  It's worth it to my peace of mine tho.
  |     |   Comment #26
I am married with 1 son...... We are signing our trust this week...... I called the fdic and they said since I am opening a trust in my wife and my name that I could only insure it up to 500K.... 250K me with my son as bebeficiary and 250K my wife and my son as beneficiary......not interested in charities or anything else.
  |     |   Comment #27
Here is what Bank of America in Texas told me today: Whomever gets the 1099-interest tax report is the "account holder" for purposes of accumulating account balances to be within the $250K limit for FDIC insured. So if I receive interest from all accounts to my SS#, then only $250K will be insured no matter how I designate account holder names and beneficiaries in multiple accounts at BofA.
  |     |   Comment #28
#27, the people you're talking to at Bank of America are idiots!!!!
  |     |   Comment #29
Stay away from BOA.


  |     |   Comment #30
To #27. 

Have you tried the EDIE Calclulator at the FDIC website that Ken referred to in his above article?  If so, how does the calculator results compare to what BOA told you? 
  |     |   Comment #31

Have you verified your example above that Cds 2-5 of $100.00 each will extend the coverage by 1 Million dollars on CD 1?  I believe the FDIC assumes equal coverage for each beneficiary.  Not percentages.

I would be interested to know the FDIC's explanation as to whether they will cover this scenario?
  |     |   Comment #33
Looking into the requirement that  Trust Relationship Must Exist in the Account Title for revocable trusts.  The code for that is 12 C.F.R. § 330.10.  In that it says that elecrtonic records at the bank will allow compliance and that it not need to be in the account title.  From that" Required intention and naming of beneficiaries.(1) The required intention in paragraph (a) of this section that upon the owner's death the funds shall belong to one or more beneficiaries must be manifested in the “title” of the account using commonly accepted terms such as, but not limited to, “in trust for,” “as trustee for,” “payable-on-death to,” or any acronym therefor. For purposes of this requirement, “title” includes the electronic deposit account records of the institution. (For example, the FDIC would recognize an account as a revocable trust account even if the title of the account signature card does not designate the account as a revocable trust account as long as the institution's electronic deposit account records identify (through a code or otherwise) the account as a revocable trust account.)"

- and-   electronic records defined as " Deposit account records means account ledgers, signature cards, certificates of deposit, passbooks, corporate resolutions authorizing accounts in the possession of the insured depository institution and other books and records of the insured depository institution, including records maintained by computer, which relate to the insured depository institution's deposit taking function
  |     |   Comment #34
Also there is a catagory of revocable trust called informal revocable trust.  I believe the only thing needed for this is having a POD benficiary.  The institution may not classify as a single or joint account, but for FDIC purposes it is an "informal" revocable trust if there is a POD beneficiary.
  |     |   Comment #36
All of this FDIC insurance is a joke!
Why am I saying it.Because if all s**that hit the fan,no insurance company will be solvent by that time.They be all packed up and left .
With the bankers ,with they declared holidays.
  |     |   Comment #44
Two comments. First, I have collected twice from the FDIC for bank failures where I had an account. I didn't lose a penny. Can't begin to tell you how lucky I was to have them. Second, the FDIC will ALWAYS be able to meet its obligations because the US treasury will always be able to print enough currency to pay them off. The problem is that the money you receive will have less value than the money you had in the bank. It won't necessarily be "worthless" though. It certainly wansn't in my case.
  |     |   Comment #37
What about setting up five entities either LPs or LLCs where each has a separate EIN, but have the same beneficial owner? Would each be insured up to $250,000?
  |     |   Comment #38
HLH, you are going to have to contact the FDIC or look up the rules on that one. My guess would be no, but who knows.
  |     |   Comment #45
Why put your eggs all in one basket (bank)? $250K checking/savings $250K IRA per SSN. Then repeat at another bank....Spread the risk.....
  |     |   Comment #49
very useful thread
  |     |   Comment #50
that lou guys sounds much smarter than the author
  |     |   Comment #51
I appreciate this article and the comments.
Cannot get straight answers from my credit union regarding NCUA.
I'm led to believe if I have $1.25 million in POD accounts at the CU as a single owner of the account and have 3 beneficiaries with approximately equal percentages and 2 others with 1% for a total of 100%, I would be covered to $1.25 million. This is the question to which I cannot get consistent answers: "Assuming I and all my beneficiaries are living if the CU defaults am I personally covered for the full 1.25? Since none of my beneficiaries are dependent on me financially, my main concern is for my own protection while I am alive. From everything that I am reading, I would not be covered beyond $250,000, although CU representatives tell me that I would be covered.
Any helpful information will be appreciated. Thanks, Luke
  |     |   Comment #52
Percentages dont matter. If you have 5 PODs, you are covered for 1.25M. Just use the calculator on FDIC's website. There is a similar one on NCUA's site which looks like a copy of the FDIC's one.
If I am not mistaken, you can get another 250k with just you an no POD. So a total of 1.5M
  |     |   Comment #53
You're covered.

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