5 common misconceptions about fdic insurance…and the real facts
the fdic receives numerous inquiries every day from consumers who have misconceptions about their insurance coverage. many of them are people who have worked for a long time to save money for retirement and want to make sure their funds are insured. To help you avoid the mistakes of others who misread their insurance coverage, especially those who inadvertently had some funds over the deposit insurance limit as a result, fdic consumer news offers an explanation of the real facts.
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misconception 1: fdic insurance coverage is based on the type of deposit you have. for example, a checking account is insured separately from a certificate of deposit (cd).
The Facts: The fdic’s insurance coverage is based on how much money each depositor has in one of several “ownership categories” at each bank: individual accounts, joint accounts, revocable trusts, certain retirement accounts and etc., not in the deposit product itself.
say jane smith has a cd and a checking account at a bank. Both accounts are in Jane Smith’s name only and she has not designated beneficiaries to receive the funds upon her death. the two accounts are considered single accounts for ownership purposes and are added together to calculate deposit insurance coverage; the fact that they are different types of banking products does not provide separate deposit insurance coverage. In this situation, Jane’s two accounts would be added together if the bank failed and $250,000 would be insured.
Misconception 2: Adding beneficiaries to Individual Retirement Accounts (Traditional and Roth) and some other retirement accounts can increase fdic insurance coverage.
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The facts: The fdic aggregates all retirement accounts a person has at a bank into the insurance category called “certain retirement accounts” and insures them up to $250,000, regardless of the amount. of beneficiaries designated to receive the retirement accounts upon the death of the owner. That category of insurance also includes accounts such as simplified employee pensions (SEP) IRAs and self-directed 401(k) and Keogh plan accounts. self-directed means that the consumer chooses how and where the money is deposited.
Misconception 3: The more joint accounts you have, the more fdic insurance coverage you may receive.
The Facts: A joint account has two or more owners with equal withdrawal rights. “Some depositors incorrectly assume that each joint account they have at a bank is separately insured, meaning they can spread the money across multiple joint accounts and increase their deposit insurance coverage,” said Martin Becker, section chief for fdic deposit insurance “But under the rules, the fdic looks at each person’s share of all the joint accounts they own at an institution and that total is insured up to $250,000, no matter how many joint accounts or co-owners there are.” The fdic also assumes that the shares of all co-owners are equal unless the deposit account records indicate otherwise.
Misconception 4: You can increase the deposit insurance coverage of joint accounts at a bank by changing the order of names or Social Security numbers on the account.
The facts: Contrary to some beliefs, naming a joint account as “joe and mary” and another as “mary and joe” (or varying social security numbers) will not increase the insurance coverage. the same goes for the substitution of “and” between their nouns for “or”. As explained above, Joe’s portion of all joint accounts he owns at a bank, including those he has with someone other than Mary, is FDIC-insured up to $250,000. Mary’s coverage is calculated the same way, regardless of who is named first or whether “and” or “or” is used in account titles.
Misconception 5: It can take up to 99 years for the fdic to pay off insured deposits when a bank fails.
The facts: The fdic occasionally gets calls from depositors about this myth; It often comes from consumers who attended a financial seminar and heard that the fdic can and will take up to 99 years to pay off a depositor’s insured deposits after a bank closes. this statement is false and completely without merit.
The truth is that federal law requires the fdic to pay escrow insurance “as soon as possible.” For insured deposits (those within the limits of deposit insurance), the FDI almost always pays insured depositors within a few business days after closing, usually the next business day. payment is made by providing each depositor with a new account at another insured institution or by issuing a check to each depositor.
The limited exceptions that may take longer to process are primarily deposits in excess of $250,000 and tied to trust documents and accounts established by a third-party broker on behalf of others. “The delay, if any, for a depositor to receive payment of insured funds is a function of the time it takes for the depositor or its broker to provide the missing supplemental information needed for the fdic to complete the insurance determination” troup explained. “This is supplemental information that is not on the bank’s records, and may include affidavits from depositors and copies of trusts and death certificates. And if there is a delay in receiving the insured funds, it is usually a matter of a few business days.”
For more information, call us toll-free at 1-877-ask-fdic (1-877-275-3342). You can also visit www.fdic.gov/deposit/deposits for detailed information about fdic insurance coverage. If you prefer to write to us, you can send us an email starting at https://www.fdic.gov/contact/ or send a letter to the fdic, section of deposit insurance, 550 17th street, nw, washington, cc 20429.