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FDIC-Insured Deposits over $100K and Other Ways to be Insured

There were many people who had deposits over $100,000 at Indymac when it went under on Friday. There were some who had deposits that were not insured. Here's what the FDIC said about depositors with amounts over the insured limits:
uninsured are still covered for their insured amounts and half of their uninsured money. As assets of IndyMac are sold, they may receive even more.

As I described in this post, you can be FDIC insured above $100,000 with revocable trust accounts with payable-on-death (POD) beneficiaries. To receive additional coverage, it is required that the beneficiaries are qualifed which means they must be the owner's spouse, child, grandchild, parent, or sibling. And they must be alive (see post for all the details).

Delayed Access to Your Money

A reader mentioned in a comment that he had over $100K at Indymac and was fully insured via revocable trust accounts. Here's what he described:
Regarding the remaining money, I have an appointment scheduled for a phone call from FDIC on August 1st which is the next step I must take to recover my remaining funds. In the meantime, I have no access to any of these funds. Access to these funds is not critical to me at this time; however, I will make it a point to never deposit over the $100K limit again. It isn't worth the aggravation.

As I described in this post the FDIC is required by law to pay the insured deposits "as soon as possible" after an insured bank fails. With deposits under $100K, the time is typically only a couple of days. But with POD accounts that are over $100K, the FDIC will have to investigate, and this can take more time.

Update: This LA Times article is reporting on other issues related to trust accounts by Indymac customers with over $100K.

Other Ways to be Insured Over $100K

There are a few more options for those who want to go over $100K and still be insured. One is to open accounts at Massachusetts banks that have DIF insurance. As the DIF Depositors Insurance Fund website describes:
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.

It's important to note that this is private insurance with no government guarantees. One DIF-insured bank with accounts available nationwide is SalemFivedirect which offers a very competitive checking account with a top yield of 3.50% APY (see my account review). The only problem with this checking account is that the 3.50% APY only applies to balances from $100,000 to under $1 million. If you have over $1 million, you're out of luck. The rate drops to 0.50%.

Another option for those with over $100K is the Certificate of Deposit Account Registry Service (CDARS). This allows you to buy a CD of over $100K at one participating bank, and the deposits get spread around at several FDIC-insured banks so that all of your deposits are under $100K at each bank. The one problem with CDARS is that the rates are not usually the most competitive. Some examples of CDARS rates are available at GCF Bank and at AARP Financial Savings Center.

For federally insured credit unions, you are insured through the National Credit Union Administration (NCUA). This coverage is very similar to FDIC coverage. There are some credit unions that provide additional private insurance through American Share Insurance. This is called Excess Share Insurance and can provide up to $250,000 of additional coverage. It's important to note that this is private insurance with no government guarantees.

For more information on FDIC and NCUA insurance, please see my FDIC and NCUA post.

For the latest reviews of Indymac's closure, please refer to Monday Indymac post.

Related Posts

Anonymous   |     |   Comment #1
Banking Guy excellent, instructive, post. You have helped to open my eyes. I make extensive use of POD situations to obtain insurance, albeit this (for me) is with the NCUA. I was of course aware of the necessity for the beneficiary to be alive at time of institution failure, else insurance due to POD is void. But I had not focused on the lost time aspect . . . until now. Now I see that the investigation can/does take significant time. If interest is lost during that interval, well, "it ain't worth it". I assure you I will be thinking twice before using POD to obtain extra insurance in the future. As for my many existing POD accounts: fingers are crossed.
scott (anonymous)   |     |   Comment #2
Like DIF we have MSIC,
for Credit unions here in MA. It is also private insurance but no one has ever lost money within their limits. Unlike DIF it's not unlimited and varies from CU to CU. One bank I use it covers up to
$600k for single accounts and $1.2 million on joints. But many of the others only have a $500k Max. You can check coverage on any CU on their site
Michael (anonymous)   |     |   Comment #3
Thank you, Banking Guy, for the very informative post and for the link to the great L.A. Times article.

A lot of us didn't go through the bank failures of the past, so this is all new information.

I, too, now need to reconsider my insured accounts over $100K. While I do believe that eventually I would get all my money should a failure occur, I don't know if it is worth the extra concern and time and worry.

This is yet another case of where an agency backed by the U.S. Government needs to be overhauled.

The FDIC and NCUA need to assure people with over $100K that it is safe to do so and that their will be safeguards in place to pay this extra money just as fast as the under $100K money.
Anonymous   |     |   Comment #4
9:31 be aware that failure to extend the $100K FDIC and NCUA limits is deeply enmeshed in politics. Several years back, for example, then Chairman Greenspan fought vigorously efforts to extend the limits. He did not want to encourage investors to put their money into banks and credit unions. He wanted money instead to go into equities. Had the $100K limit been indexed to inflation it would be FAR higher today. But back when Greenspan was out there ****ing us, all that was heard from the public was the chirp of crickets . . . . silence. So bottom line, of course the $100K limit is ridiculous. But until people get off their arses and protest, it will endure.
Anonymous   |     |   Comment #5
To all of you who nave over 100K in any Bank.

Please don't do it for the following reasons:

a) If a Bank employee or someone from the management commits a fraud and the Bank is shut down, Private insurance will not pay a single cent over the FDIC $100K.

b) PODs accounts can be contested by anyone and can take forever to collect if ever. The paper work can be a burden.

c) Putting minors or mentally challenged person or someone who may die before you collect as a beneficiary to any account, can open a plethora of problems and delays.

Therefore, best protection is single or joint account with a spouse, nothing more nothing less. Simplicity is the key to collect the FDIC insured deposits. Don't be fooled by trust accounts or any other trick to by pass the law. Even the law allows combinations of beneficiaries, when it comes to collect will be a snag or unpleasant delays.
Anonymous   |     |   Comment #6
I agree with the poster form: 11:59 AM, July 16, 2008

Let say you have POD account over $100K and you die in a car accident. Who will inherit the money?

Your will says that you leave everything to your spouse, but you have a POD with you minor sibling.

According to FDIC, the money will be frozen in an account until the minor mentioned in the POD is 18 years old. It can be a long time wait since your will will be ignored. Your spouse can be strap for money at the moment when the needs for money is greatest.

POD are dangerous traps and dealing with the FEDS is a nightmare scenario.
trinidon2k (anonymous)   |     |   Comment #7
Is a POD (Payable on Death) the same thing as the names you'd fill in on the "Beneficiary" line when you are opening a bank account? Or is it something you specifically have to ask for?
O-Qua Tangin Wann
O-Qua Tangin Wann (anonymous)   |     |   Comment #8
Yes, POD is the result of the beneficiaries you list on your account form. Should you die, the beneficiaries will be paid your money.

Can also be referred to as In Trust For (ITF).

FDIC lists on their site that your account title reflect that your account is a POD or ITF account, so make sure your account title says your name+POD or ITF (and can even list the beneficiaries in the account title).

Get a copy of your account sig card and/or forms so you can show the FDIC if your bank fails.

~O-Qua Tangin Wann
Anonymous   |     |   Comment #9
Hey there...my new $10K CD was funded into Indymac on 7/8! I'm thinking that the FDIC via Indymac FSB will either tell me to pull the money out, leave it in at a renegotiated lower rate, or leave it in at the original pre-closing rate.
I'm hoping they let me leave it in at the original rate?
Thoughts on this?
Banking Guy
Banking Guy (anonymous)   |     |   Comment #10
There was a BestCashCow post that described the options for an Indymac CD holder. I referenced this at the bottom of this post. Here's a copy of that:
Depositors will have six months to cash out the CDs with no penalty or they can keep them at the bank. If they keep them at the bank the FDIC will continue to pay the contract interest rate. But, if another bank comes in and buys Indymac, as I'm sure the FDIC hopes, the bank has the right to adjust the rate paid on the inherited CDs.
Anonymous   |     |   Comment #11
From now on my thinking will be the same as the poster from 11:59 AM, July 16, 2008.

Reason, FBI started investigation at IndyMac for possible fraud, which means that many accounts over $100K will not be paid until the investigation is in progress.
And then, it may pay less then 50% above $100K.

I will never use POD or ITF ever again.
Anonymous   |     |   Comment #12
A question for all you brilliant bank-users: the FDIC rules talk about accounts being "in a single name" and imply that differently-named accounts are treated separately, for insurance purposes. Does anyone understand precisely HOW these accounts can be named differently to qualify? I'm not talking about joint vs single accounts--can you name one account MYNAME POD 1, 2, 3 and another MYNAME POD 4, 5, and have these accounts be differently insured? Sounds trivial but...