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Owner Category Of Brokered Cds And Max FDIC Coverage

EdwardD
  |     |   77 posts since 2023

According to CD Disclosure from Fidelity:

"The CDs of any one Issuer that you may purchase will be eligible for FDIC insurance up to $250,000 (including principal and accrued interest) for each insurable capacity (e.g., individual, joint, IRA, etc.). For purposes of the $250,000 federal deposit insurance limit, you must aggregate all deposits that you maintain with the Issuer in the same insurable capacity, including deposits you hold directly with an Issuer and deposits you hold through the Firm and other intermediaries.  Please be aware that if an Issuer is a U.S. branch of a foreign (non-U.S.) bank with multiple U.S. branches, deposits held by you at all of the foreign bank’s U.S. branches in the same insurable capacity will be aggregated for federal deposit insurance purposes. "

But how to determine the ownership category of a brokered CD issued by a bank for the purpose of calculating FDIC insurance coverage?

I have a Fidelity Joint Brokerage account (has one joint owner) with TOD (2 beneficiaries). I already bought a 5 year brokered CD issued by Citi National Bank and plan to buy more CDs issued by the same bank . I don't hold any products directly at Citi National Bank.  

What is my maximum FDIC coverage for ALL these brokered CDs issued by Citi National Bank? $250,000 or $1,000,000?

If the ownership category of these CDs is treated as a trust, then the maximum FDIC coverage will be $1,000,000.

When we buy brokered CDs in Fidelity, we don’t specify the ownership category we want to buy the CD for. Can I assume if the brokerage account is joint with one co-owner and has 2 beneficiaries, then ALL brokered CDs issued by the SAME bank will be insured by FDIC for a maximum of $1,000,000?

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2


Answers
sams1985
  |     |   781 posts since 2022
Can't speak for beneficiary coverage but i've confirmed multiple times with Fidelity fixed income specialists that a joint account is treated as 2 owners aka 250k per owner for a total of $500k. When asking about beneficiary coverage, I was referred to the FDIC. Seemed a bit more murky.

Good way to check and verify how Fidelity has registered the CD purchase on your behalf- after buying a CD go to the Fidelity trade confirmation page.Under trade confirmations look for trade confirmation of your CD purchase. See what is listed on the top right under ownership. For me, it says "Joint account with rights of survivorship" and lists both my and my wife's name as owners of the CD. Using this information it's fairly safe to assume FDIC coverage of 500k total (250 per person)

I woudn't recommend going over $500k of any one bank for brokered CD's. Even if you are covered, if a bank fails you may possibly lose out on a huge return for the remainder of the term.
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ocsteve
  |     |   96 posts since 2010
I also have a brokerage account at Fidelity in a Living Trust vesting. My Living Trust has 7 beneficiaries of unequal amounts. In my case I am FDIC/NCUA insured to a maximum of $1.25 Million per Bank for brokered CDs.

In your case, I believe you have $1 Million of FDIC/NCUA insurance coverage.
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EdwardD
  |     |   77 posts since 2023
Also, the joint-owner (P2) happens to have a Vanguard IRA brokerage account (with 3 beneficiaries) and own a small brokered CD issued by Citi National Bank. But I think since it is an IRA, this CD will be insured separately up to 250k. From what I read from fdic site, having beneficiaries in an IRA does not increase the insured amount beyond 250k.
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betaguy
  |     |   180 posts since 2022
there is no Citi National Bank.
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ocsteve
  |     |   96 posts since 2010
I’d think the poster means City National Bank in California.
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EdwardD
  |     |   77 posts since 2023
In case a brokerage firm (i.e. Fidelity, Schwab or Vanguard) is in liquidation, SIPC protects each customer up to $500,000 for securities and cash (including a $250,000 limit for cash only). Not only we need to watch for the FDIC limit (when bank fails), we also need to watch for the SIPC limit.

Does this mean one should not hold more than 500k in a single brokerage firm?

Per SIPC website FAQ: "For purposes of SIPC protection, a joint account is treated as a single customer irrespective of the number of co-owners."

Does having multiple beneficiaries increase SPIC coverage? For FDIC and SIPC coverages, does merely adding beneficiaries to a Fidelity joint brokerage turn it into Trust account? Or does a it need to be a formal Trust account?

So, does that mean even for a joint (multiple owners) brokerage account with multiple beneficiaries, the max SIPC coverage is still 500k?

What about our employers' 401k administered by Fidelity, Vanguard etc?  

For those interested,
https://www.sipc.org/for-investors/investor-faqs
https://www.sipc.org/for-investors/investors-with-multiple-accounts
https://www.sipc.org/about-sipc/statute-and-rules/series100
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