investing

FDIC insurance extended

Highlights
  • The insurance limit was set to roll back to $100,000 on Jan. 1, 2010.
  • The original increase was announced as consumers lost faith in banks.
  • If set up right, a couple could insure $2 million at one bank.

Consumers who want to safeguard their money in these turbulent times will benefit from the four-year extension of $250,000 FDIC deposit insurance per depositor on individual accounts. The insurance limit was slated to roll back to $100,000 Jan. 1, 2010, but Congress has extended the deadline through Dec. 31, 2013. As things stand now, the standard insurance coverage will revert to $100,000 per depositor Jan. 1, 2014.

"No doubt some investors had been nervously eyeing the Dec. 31 sunset of that $250,000 threshold," says Greg McBride, senior financial analyst at Bankrate.com. "If they were renewing CDs, any maturities of seven months, nine months, a year -- pretty common maturities -- anything beyond that Dec. 31 time frame had to have enough wiggle room so that interest earnings didn't put the investors over the lower $100,000 insurance cap that would have been reinstated."

The original increase from $100,000 to $250,000 was announced last October as consumers were losing faith in the financial markets and the banking system. Congress wanted to assure consumers that their funds were safe in the nation's FDIC-insured banks and NCUA-insured credit unions.

The $250,000 coverage is per depositor, per institution. If you have $300,000 you want insured in deposit accounts at Bank of America, you can't simply divide it among a couple of branches. You either have to use two separate institutions -- BofA and JPMorgan Chase, for example, or you could put it all in one institution under separately titled accounts. These are deposit accounts but with different titles of ownership.

Here's an example of how a couple could insure $2 million at one bank.

  • Husband and wife each have $ 250,000 in an individual account.
  • They have $500,000 in a joint account.
  • Each has $250,000 in an individual retirement account, or IRA.
  • Each sets up a $250,000 revocable trust account, payable on death, naming each other as beneficiaries.

The rules for revocable trust accounts can be complicated; be sure to review the FDIC's latest information.

As always, credit union and bank-held retirement accounts, such as IRAs, remain insured for $250,000 per depositor. Congress permanently increased protection on those accounts April 1, 2006.

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