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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Understanding Deposit Insurance Coverage with Multiple Beneficiaries

Deposit insurance can be simple if your balance is under $250,000. Once you go above $250,000 at one bank, it can become complicated to ensure your entire balance remains covered by the FDIC. One of the most useful documents is a guide that the FDIC developed for bankers. It's called the FDIC Comprehensive Seminar On Deposit Insurance Coverage For Bankers. This is a January 2012 version. I first noted an older version of this guide in my 2011 post on Maximizing Your FDIC Coverage with Beneficiaries. I'm not aware of any FDIC rule changes since then. The changes appear to be have been made for presentation reasons. If you haven't reviewed the FDIC rules in several years, you should be aware that there were important changes that took effect in 2008 such as the increase of the standard maximum deposit insurance amount from $100,000 to $250,000.

One complicated aspect of FDIC insurance for balances over $250,000 deals with revocable trust accounts. Trust accounts indicate an intention that the funds will belong to one or more named beneficiaries upon the last owner’s death. Revocable means that the owner retains the right to change beneficiaries and allocations or to terminate the trust. Revocable trust accounts include informal trusts in which accounts designate beneficiaries with terms like POD or ITF. They also include formal trusts like living trusts and family trusts.

In my 2011 post, I described how revocable trust accounts with 5 beneficiaries can be used to easily cover up to $1.25 million at one bank. If the owner names more than 5 beneficiaries, it becomes more complicated. If you want to understand those details, refer to this FDIC document, FDIC Seminar On Revocable Trust Accounts For Bankers. Like the other guide, this is training designed for bankers, but it's useful for consumers.

As I described in my 2011 post, when an owner has 5 or fewer beneficiaries, the maximum deposit insurance coverage is equal to $250,000 times the number of unique eligible beneficiaries. And this doesn't change even if the beneficiaries have different allocations. A good example of this is shown on page 22 of the guide.

When the owner has over 5 beneficiaries and the allocations to the beneficiaries are not equal, the maximum deposit insurance coverage is more complicated. Here's an excerpt of page 23 which provides a useful summary of the rule:

Coverage Calculations for Six or More Beneficiaries with Unequal Allocations

If the owner is attempting to insure more than $1,250,000 and has named six or more unique eligible beneficiaries under one or more revocable trust deposits, but has unequal percentages or dollar amount allocations to the beneficiaries, then no specific allocation to any beneficiary can exceed $250,000

If any beneficiary’s allocation does exceed $250,000, then the default total insurable amount (with no uninsured funds) is a maximum deposit of $1,250,000

The guide has several examples. If you want to evaluate the insurance coverage with your own examples, you can use the FDIC EDIE calculator. However, EDIE cannot calculate the insurance coverage of revocable trust accounts with more than 5 beneficiaries who have unequal interests.

It's important to remember that 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 by the FDIC. 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 at 1-800-755-1030.

Hat tip to the reader who notified me of these latest FDIC documents.

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  |     |   Comment #1
With respect to IRA accounts, is their any way to have FDIC coverage of a single IRA account higher than the 250, or, are multiple IRA accounts the only solution? 
  |     |   Comment #2
I should have mentioned that you cannot extend coverage with beneficiaries for IRAs or other retirement accounts. This is a separate ownership category from revocable trust accounts. Here's an excerpt from page 50 of the Comprehensive Seminar document:

For deposits under this category such as IRAs, deposit insurance coverage cannot and does not increase by adding beneficiaries

I'm afraid I don't see a way to extend coverage over $250,000 for individually owned IRA accounts at one bank.
  |     |   Comment #3
One can extend the coverage for a single IRA account if you do it through a brokerage and make sure the CDs you put into the account don't go over the insurance amount for any one bank.   With a brokerage IRA one can use a multiple amount of banks and each bank in the IRA is covered so this is a way to extend your IRA insurance for one IRA instead of having several.  You just have to make sure you don't over extend the amount in any one bank in the IRA.  The brokerage is not responsible for keeping control of this for the customer. 
  |     |   Comment #4
Paoli - You are exactly right with respect to FDIC coverage using multiple brokered CD's through a single brokered account...and it also makes it much simpler to handle. In my case, I found it advantageous to transfer a portion of my IRA account to other institutions directly in order to obtain substantially higher rates than the broker, Fidelity, was offering. So, I have ended up with higher rates by using multiple accounts but a lot more details to keep track of....eventually, I hope to consolidate the IRA accounts to Fidelity again but realize that day may very well be a long time coming.

Ken - thanks for your very clear answer.

  |     |   Comment #6
#4  You are exactly right about the interest on brokerage CDs.  That is my main negative with using them.  Unfortunately, I have never been able to get higher interest from their CDs.  You seem to be doing what is best for you at this time. 
  |     |   Comment #5
CDARS, if you really want to lock in a lot of retirement funds in a "safe" investment that gains less than inflation takes.
  |     |   Comment #8
#5 In all my years of checking out CDARS programs, I have never found one that gave me better interest rates than I could find searching out individual banks and cus.  I don't even know why they exist except to make money for the people promoting them.  Not my cup of tea unless they change in a more positive way for depositors.
OC Steve
  |     |   Comment #7
Re: #5 - CDARS Program

My experience is that while the CDARS Program is very convenient, ihe rates associated with the program are a little lower than what one could obtain from going direct with several Banks.  Someone has to pay the "fee" (ie-lower rates) for the program, although the depositors do not directly, the Banks that participate always offer slightly lower yields to compensate for the fees that they pay to belong/participate in the program.
  |     |   Comment #9
What is worse: CDARS or brokered CDs from Fidelity?
  |     |   Comment #10
#9  What kind of question is that?  They are two entirely different things.  Neither one will give you the best interest rate if you are going for CDs.  Do you even know what CDARS are?
  |     |   Comment #11
Paoli2 - #10.  If you don't understand the question, don't make a derogatory remark answering it.
  |     |   Comment #12
#11  It was not a derogatory remark.  Many people do not know what CDARS are and how they work.  By the nature of the question, I presumed the poster was not aware of the way CDARS work.  If you do not understand the reasoning behind my remark, you should not tell me how I should post.  Thank you.
  |     |   Comment #13
Paoli... on your estimated tax question. If one has an IRA having taxes withheld by it is deemed to satisfy timing issue. I usually wait to December and the have taxes withheld in a distribution. I don’t file any estimated tax voucher
  |     |   Comment #14
Do you realize that you are replying to comment posted more than six years ago?

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