Earlier this month boxing champion Floyd Mayweather Jr. made news for more than just winning another fight. In an ESPN interview, it was revealed that Mayweather had a single bank account with $123 million. That balance may have increased after Mayweather defeated Canelo Alvarez for a record $41.5 million payday.
I’m sure very few people have this much money that they want to keep in a liquid bank account. However, many people may have to keep over $250,000 in a bank account. It may be after a house sale or after inheriting money. In today’s interest rate environment, it may also be common for savers as they move matured CDs into liquid accounts. If you have over $250,000 in any one bank, it’s important to make sure you don’t have any money that’s uninsured. Most depositors of failed banks have been lucky in recent years since the FDIC has typically been able to find a buyer to assume all deposits of the failed bank. However, occasionally no buyer is found. That was recently the case with a Connecticut bank that failed on September 13th. In these cases, depositors will lose some or all of their uninsured deposits.
There are several ways to insure deposits over $250,000 at one bank or credit union. You do have to be careful. If the bank doesn’t follow the FDIC’s rules, the depositor will be the one who will pay the price. So it’s important for those with over $250,000 in a bank to fully understand the FDIC rules. One of the best resources that I’ve found is this FDIC Comprehensive Seminar on Deposit Insurance Coverage For Bankers. Also, it’s a good idea to use the FDIC EDIE calculator to see if you have any uninsured deposits.
An easy way to insure more than $250,000 deposits in one bank account is with revocable trust accounts. These can be established just by designating beneficiaries using terms like payable-on-death (POD) in the account title. One can easily insure over a million by naming multiple beneficiaries. Below is a snapshot of an example that I did using the FDIC EDIE calculator. In the example, John Doe is the owner of a bank account with 10 beneficiaries. The beneficiaries are charities. The FDIC now allows IRS-approved charities and non-profit organizations to be qualified beneficiaries for deposit insurance purpose. This has an advantage over individuals since you lose the additional coverage immediately if the beneficiary dies.
As you can see in the below snapshot, the 10 beneficiaries allow all $2.5 million of deposits in the one bank account to be fully FDIC insured. Additional coverage can be added with additional beneficiaries. You’ll probably be limited by the bank in how many beneficiaries you can designate. For example, Ally Bank limits the number of beneficiaries that can be listed on an account to 10. Also, they allow charities to be beneficiaries.
Another easy way to increase FDIC coverage is with joint accounts. If a joint account was used in the above example, the total coverage with 10 beneficiaries can be increased to $5 million.
The problem with using beneficiaries as shown in the above example is that it may conflict with your estate plan. When you die, you may want to leave most of your money to one or just a few people. If that’s the case, you can still use beneficiaries to easily insure over $1 million. I described how you can do this in my post Maximizing Your FDIC Coverage with Beneficiaries.