UPDATED: Is Your Money Safe? FDIC Insurance and Other Protections for Your Funds

October 6, 2008

UPDATED: September 15, 2009

UPDATED: The FDIC and NCUA Insurance Coverage limits have been extended until December 31, 2013. That means that the FDIC and NCUA will continue to cover deposits up to $250,000 per account owner per covered institution from now through December 31, 2013. On January 1, 2014, unless extended again by Congress, the limit will revert to the former limit of $100,000 per account owner per covered institution, except for certain retirement accounts. The same rules apply regarding categories of accounts – separate coverage is given for different categories of account type. Depositors still qualify for more coverage if they spread their deposits in different ownership categories (e.g. single account holder, revocable trust account and Retirement Accounts, including IRAs).

Many of our clients have asked for guidance in covering their risk of deposit exposure at area banks and brokerage houses for personal, living trust, business and retirement accounts. [1] The most important factor in the safety of your money is the overall health of the banks or brokerage houses with which you do business. There is no federal agency “watch list” released to the public, because that could lead to a run on a troubled bank. But several rating services are available. [2] In addition, a safety net of financial insurance protects customers of institutions such as banks, credit unions and brokerage firms if they are members of the Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration (NCUA) or the Securities Investor Protection Corporation (SIPC). Of course, market losses and inflationary trends are not covered. You can perform a self audit to determine the extent of this coverage for your assets.

If any of your banks or brokerage firms fails, your current holdings and accounts may pose some risk if deposits per account owner per institution exceed FDIC, NCUA or SIPC limits. Your self-audit should take inventory of your accounts per account owner per bank or firm, and calculate the estimated amount of uninsured funds per bank based on that information. [3] We also encourage you to talk with your account manager or investment advisor at each bank and brokerage house because they may be able to identify ways to protect your assets while keeping your assets with that trusted financial relationship. Here is a summary of the risk and some options for you to explore.

FDIC or NCUA Coverage. Deposit accounts, Negotiable Order of Withdrawal (NOW) accounts, CDs, money market accounts and savings accounts are all assets covered by FDIC insurance. Stocks, bonds, mutual funds, insurance products, annuities, investments backed by the US government such as Treasury bills and savings bonds are all assets not covered by FDIC insurance. On October 3, 2008, the Emergency Economic Stabilization Act (EESA) temporarily raised the basic FDIC and NCUA insurance limits from $100,000 to $250,000 per depositor (or titled account) per FDIC insured bank or NCUA insured credit union. This remains in effect from October 3, 2008 until December 31, 2009, unless extended by Congress. Previously scheduled increases had been set to take effect every five years based on inflation figures beginning in 2010. In 2006, the Federal Deposit Insurance Reform Act set a limit of $250,000 per depositor per FDIC insured bank for certain retirement products such as individual retirement accounts (IRAs), Roth IRAs, Section 457 deferred compensation plans, self-directed Keogh account plans, and self-directed defined contribution plans. This $250,000 retirement account limit remains unchanged by the EESA. The types of covered assets for retirement accounts and basic accounts are the same.

SIPC Coverage. SIPC [4] covers cash and securities, such as stocks, bonds, mutual funds, notes, options, money market funds, debentures, warrants and rights, being held at a member broker/dealer. Assets not covered by SIPC include commodity futures contracts and foreign currency, as well as investment contracts (such as limited partnerships) and fixed annuity contracts that are not registered with the U.S. Securities and Exchange Commission under the Securities Act of 1933. Brokerage houses are required by law to keep customer securities segregated from their own holdings so that in the event of an insolvency of the firm, creditors do not have access to customer securities. Customers of a failed brokerage firm get extra protection from SIPC to cover shortfalls in amounts owed to the customers. Missing securities or cash will be reimbursed by SIPC up to a maximum of $500,000 per customer, $100,000 of which may be cash.

Options for Spreading Your Risk:


  • Establish additional accounts at other separately-chartered FDIC insured banks, or accounts at credit unions, covered by deposit insurance by the National Credit Union Share Insurance Fund. This option can pose administrative hurdles.
  • Certificate of Deposit Account Registry Service (CDARS) [5] provides convenience for access to up to $50,000,000 in FDIC protection for CDs in multiple FDIC insured banks while receiving only one statement and one 1099 form. CDARS provides access to individual CDs through its 2350 member banks, including AnchorBank, fsb, Associated Bank, N.A., Bank Mutual, Bank of Wisconsin Dells, The Baraboo National Bank, DMB Community Bank, Evergreen State Bank, Johnson Bank, The Park Bank and Town Bank. Institutional Deposits Corp. (IDC) [6] also provide one statement and one 1099 form. IDC provides similar access to money market accounts through its 250 plus member banks for up to $5,000,000 in FDIC-insured coverage per tax ID in its Money Market Account Xtra (MMAX) [7] account. Bankers’ Bank here in Wisconsin is an IDC partner. Rates at CDARS and IDC providers may not offer the best return but instead provide convenience.
  • Establish accounts with Wintrust Financial [8], a bank holding company with 15 separately chartered banks located in the suburbs of Chicago, Illinois and Southeastern Wisconsin, including Town Bank in Madison, Delafield, Wales, Elm Grove, and Hartland, Wisconsin. Wintrust offers a MaxSafe account that allows up to $3,750,000 in CDs and money market accounts, and may be able to do more by using different beneficiaries on accounts (see below), while keeping a nearby local bank in control. Account holders get one statement and one 1099 form.
  • Set up different Payable on Death (POD) accounts, where a beneficiary or multiple beneficiaries are to receive the funds if Owner dies. New rules for POD and other more formal revocable trust accounts widen the coverage limits for such accounts at banks or credit unions. [9] Owner maintains control of the assets and naming of beneficiaries before death. Coverage for revocable trusts with up to five different beneficiaries named in all of his or her revocable trust accounts at each member institution will be insured up to $250,000 per beneficiary (no matter the % benefit). The new rules eliminate the requirement for “qualifying beneficiaries” such as spouses, children, stepchildren, grandchildren, parents and siblings. Beneficiaries named on the account may be any person, charity or non profit. In applying the $250,000 per beneficiary insurance limit, the FDIC combines an Owner’s POD accounts with any living trust accounts that name the same beneficiaries at the same bank. Please note that the rules of coverage applied to accounts of formal living trusts are more complicated and exceed the scope of this article. Use caution to make sure that any POD accounts do not override the provisions of a living trust or a will.
  • Depositors Insurance Fund (DIF) [10] – Depositors at certain Massachusetts banks have access to the FDIC insurance on the first $250,000 of funds, and unlimited excess insurance under DIF. Out of state depositors are accepted.
  • Brokerage firm CDs – Similar to the CDRS, you invest in CDs through your brokerage house, but it is up to you to make sure that the banks that you are buying CDs from are unrelated and separately chartered. Your brokerage house is the name and contact info on the CDs, not you individually. Because the brokerage house has multiple customers and institutions (with other customers) for which it holds CDs, administration in a bank failure scenario may be cumbersome and time consuming.

Again, we encourage you to talk to your banker or investment advisor to get more specific information on your options.

[1] This article is general in nature, and is not intended to be legal or financial advice for specific clients. Any advice expressed in this writing as to tax matters was neither written nor intended to be used and cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on the taxpayer. Each taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.
[2] For the FDIC’s listing of such rating services, see: http://www.fdic.gov/bank/statistical
[3] You can also use the FDIC website to calculate uninsured exposure, but the EDIE program does not allow you to save your work and resets for every session. See: http://www.fdic.gov/edie
[4] See: SIPC – Securities Investor Protection Corporation Web site
[5] See: Certificate of Deposit Account Registry Service
[6] See: IDC Deposits
[7] See: IDC Deposits – MMAX
[8] See: Wintrust Financial
[9] See: FDIC: Insuring Your Deposits and NCUA – Simplify Coverage for Revocable Trust Accounts
[10] See: DIF – Depositors Insurance Fund

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