Protecting Your Money If Your Bank Fails – Part 2

In my blog post last week I began discussing the subject of FDIC insurance, a topic on many people’s minds in light of the recent bank failures.  I discussed the types of accounts that are covered by the insurance.  I also explained that there is a limit of $250,000 of insurance per depositor per account type.  What does that exactly mean?

Account types include single accounts, joint accounts, retirement accounts revocable trust accounts, irrevocable trust accounts and for profit and not for profit entity accounts.  The $250,000 insurance limit applies separately to each category.

All single individual accounts owned by the same person at one bank are added together and insured up to the maximum limit of $250,000.  Joint accounts are accounts that have more than one owner.  Each co-owner’s joint accounts at one bank are added together and insured up to the $250,000 limit.  So, a person can have individual accounts as well as joint accounts at the same bank.  Each category is insured for up to $250,000.

Retirement accounts are a different category.  These include IRAs, 401ks, profit sharing accounts and 403b accounts.  A depositor is entitled to $250,000 insurance protection for all accounts at one bank in these categories.   This is treated separate and apart from individual accounts and joint accounts.

Revocable trusts are yet another category.  Such trusts include formal trusts created by a trust agreement, however, “payable on death” (POD) and “in trust for” (ITF) accounts also fall within this category.  Each trust beneficiary is entitled to up to $250,000 of insurance coverage.

Irrevocable trust which cannot be revoked or amended, different than revocable trusts are treated as a separate category.  These types of trusts can have contingent beneficiaries and non-contingent beneficiaries.  This class type is also entitled to $250,000 of insurance but calculated differently for each type of beneficiary. 

Also worth noting is that the rules applied to revocable and irrevocable trusts will change effective April 1, 2024 in an effort to simplify them.  The new law will provide that each beneficiary regardless of type of trust or type of beneficiary will be entitled to $250,000 insurance up to a limit of 5 beneficiaries.

Finally, corporate, partnership and other entity accounts are also entitled to FDIC insurance coverage.  This means that a shareholder of a corporation which has the FDIC insurance protection can also be protected under the other categories separately as noted above.

So, many depositors have much more than $250,000 of FDIC insurance protection depending on how their accounts are categorized.