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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Do You Have All of Your Deposits Federally Insured?

If you have a large amount of savings that you keep in one bank or credit union, it can be easy to go above the federally insured limits. I thought this would make for an interesting poll question. Do you knowingly have deposits over the federally insured limits at your banks or credit unions?

Most banks and credit unions won’t fail, so your money will probably be safe. That feeling is probably common at too-big-to-fail banks like Bank of America. However, regardless of the bank, there is a risk that you could lose money that is over the insurance limits. That happened to quite a few people in 2008 when IndyMac Bank failed.

Some people may have been fully covered in previous years when there was temporary unlimited deposit insurance coverage for noninterest-bearing transaction accounts. In 2011 and 2012, certain transaction accounts that pay no interest were entitled to unlimited deposit insurance coverage. This temporary protection was created by Congress to help maintain confidence in the financial system for depositors who had large balances in noninterest-bearing checking accounts, typically for businesses but any depositor qualified. This unlimited coverage ended in 2013. Note, this unlimited coverage has no relationship to the $250,000 standard deposit insurance coverage. That is permanent. I have more details in this blog post.

There are several ways to keep large deposits fully covered by federal deposit insurance without having to open multiple accounts at many different banks and credit unions.

One way to insure more than $250,000 at one bank or credit union is to use multiple ownership categories that include joint accounts and revocable trust accounts. I described how this can be done in my post, Insuring Bank Deposits Over $250,000 With Multiple Ownership Categories. 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.

Another way to insure more than $250,000 without having to open accounts at multiple banks is to use CDARS, Certificate of Deposit Account Registry Service. CDARS allows one to invest multi-million-dollar deposits into CDs without going over the FDIC limit. The service spreads deposits in multiple banks to ensure deposits at each bank remain under $250,000.

You might expect that the rate will be a little lower to pay for the CDARS service. However, if you look at CDARS rates, you will often find they are much lower than rates that you can get directly from banks and credit unions. One example is EverBank which offers both regular CDs and CDARS. For a 1-year term, the current standard CD rate is 0.65% and the current CDARS rate is 0.28% (rates accurate as of 5/29/2013).

Another way to insure over $250,000 at one bank or credit union is from private deposit insurance. The safety of private deposit insurance has always been a concern for many savers. I reviewed this concern in my article on private deposit insurance for credit unions. Only a few credit unions and banks offer private insurance. In some cases, the private insurance is only used to cover deposits over the FDIC or NCUA limits. I have more details in my post on ESI - Little Known Deposit Insurance for Credit Unions.

Are there other ways that you use to fully cover your large deposits?

Related Pages: CD rates

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  |     |   Comment #1
Some banks in Massachusetts have Depositors Insurance Fund (DIF).

"The DIF is a private, industry-sponsored insurance fund that insures all deposits above Federal Deposit Insurance Corporation (FDIC) limits at Massachusetts-chartered savings banks. The DIF has been insuring deposits since 1934."

"All DIF member banks are also members of the FDIC. Each depositor is insured by the FDIC to at least $250,000. All deposits above the FDIC insurance amount are insured by the Depositors Insurance Fund (DIF)."

Although I am not sure what would happen if all the Massachusetts DIF member banks went under at the same time? 


  |     |   Comment #2
If your financial institution fails, you can set off the unpaid balance of your loans against the uninsured amount of your deposits.
  |     |   Comment #3
Each one of my accounts are federally insured either through the FDIC or NCUA. Years ago I had some accounts at a credit union that had private insurance, through ESI, for amounts above the then NCUA limit of $100k. At one point the credit union didn't want to pay the premiums and discontinued the private insurance. Soon after that, I closed all my accounts at that credit union, either as the share certificates matured or just closing the share savings account.
  |     |   Comment #4
My funds are all in IRAs and I can't insure more than $250,000.

I've been forced by low rates to go over the NCUA limits. To me, it's worth the additional risk to add on to an existing CD at Navy Federal than take a ridiculously low rate for a new CD.

But I'm closely monitoring Navy Federal's health rating.
  |     |   Comment #5
All my deposit accounts are federally insured either through FDIC or NCUA.  I choose to avoid doing business with any institution that has only private insurance such as ASI. 
  |     |   Comment #6
bbug:  Do I read your post correctly that you are able to add more funds to an existing CD at Navy Federal?   This must be only at maturity, right?  I have never had a bank or cu allow me to add money to an existing CD unless it is at maturity or I close the CD and have to buy another at the new interest rate.  I am interested in how you managed to do this since we have a CD at Navy Federal and did not know this option existed.  Thanks for any info you can provide.
  |     |   Comment #7

Navy has for the past few years permitted adding to existing CDs at the original interest rate from early January through maybe April. I added more than the original principal to a CD maturing in 2018 and yielding 3.4% in January, 2013.
  |     |   Comment #8
Thanks so much.  I don't think our CD has that high an interest rate since we just got it last year.  It's great to know Navy will allow this.
  |     |   Comment #9

You need to know at the beginning of each year that Navy FCU permits you to add to existing IRA c.d.' s only.  They do not permit the add on to non IRA c.d.'s.
  |     |   Comment #10
The survey shows 16% have some funds uninsured. Why can't they be structured to be 100% insured?
  |     |   Comment #11
For one thing, IRAs are limited to $250,000 insurance. If you have more than that in one institution, it's not insured.
  |     |   Comment #12
I only have anecdotal data, but i'm guessing the results of this survey would look different if polling the nation at large (as opposed to people that are interested/savvy enough to read or even be aware of the DepositAccounts blog).  Or if the results looked the same, it would be because two different factors were counteracting each other:

On the one hand, obviously the vast majority of Americans don't have $250,000 in liquid deposited cash, and i'm guessing that the percentage of them that have it deposited in a bank that is not FDIC/NCUA insured is minimal (just look at account stats for BofA, Chase, WellsFargo, etc.).  So I would think that the percentage of Americans that have uninsured deposits is very small.

On the other hand, among those who "qualify" to have uninsured deposits at FDIC/NCUA-insured banks and credit unions, I would guess that a number of somewhat wealthier depositors in the $300k-1.0mm range don't take the time or have the knowledge to get their ducks in a row on this front.  For them, it's far easier and more convenient to do all of their banking at one place, where they know the banker(s) and don't have concerns about the bank failing (rightly or wrongly).  I say this because of my anecdotal evidence of knowing a couple of folks like this well enough to know how they handle their funds.  These are obviously not the same people that are likely to be aware of a site like this and participate in a survey like this.  

Also would be interested to see how many of the 22% that have uninsured funds have those deposits sitting somewhere internationally.  
  |     |   Comment #14
bbug:  There is something confusing about your IRA info.  I never read anything about one only being able to have one IRA insured for $250,000.00.  We have more than one in Rollover IRAs in two different brokerages and were told that since we have the money in CDs "each" seperate bank CD is insured for $250,000.00.  We just have to monitor which CDs we buy and make sure we don't go over the insured amount for "each" seperate bank.  An IRA is just a basket that holds all of the CDs and they are insured just as if we were holding them ourselves.  Now if you put all your IRA money into "one" bank CD, you will be held to the $250,000.00 limit.  The brokerage is not insuring the money.  The FDIC insurance comes from "each"  bank you purchase the CD from.  It all depends what you are doing with the money in the IRA as to how much it is insured for from everything we have been told.
  |     |   Comment #15
You are correct. The $250,000 limit is for each institutuion. I should have said an IRA account in one bank. But the ways to increase your coverage with different beneficiaries is not available in IRAs, and I am over the NCUA limit because I'd rather get the higher available interest rate with the additional risk than put my funds in another bank or credit union.
  |     |   Comment #16
If you have a revocable trust, the $250K limit is for each beneficiary.  I believe that is if the principal is equally divided among beneficiaries, it's slightly different if it's not equal.  Since my trust has 12 beneficiaries, my insured limit is $3 million at my institution.
  |     |   Comment #17
Saver, I don't think you have $3 million of inurance because you have 12 beneficiaries. After 6 beneficiaries, the rules are very complicated. I would call the FDIC or NCUA to get clarification.

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