Insurance on Deposits - 3/27/08

Jeff:  How safe is your life savings?  The stock values of major banks in Cleveland and around the country have plummeted due to sub prime mortgage losses.  Are you at risk of losing your deposits in the bank? Here to discuss how to protect your money is attorney Michael Solomon.

Jeff:  I think most people are aware that deposits at banks are insured by the government from losses. How good is that protection? 

Michael:  It is very good, up to a point.  The Federal Deposit Insurance Corporation, or FDIC, insures bank deposits up to $100,000. The FDIC is a US government agency that is backed up by the full faith and credit of the United States government, so the protection is strong.  But FDIC protection is limited to $100,000.  And while the FDIC insures checking accounts, savings accounts, money market deposits and certificates of deposit, it does not insure stocks, bonds, mutual funds, or annuities, even if bought from a bank.

Jeff:  While $100,000 is a good amount, if you have more than $100,000 at a bank, could you lose it if a bank collapsed?

Mike: You can. However, with the proper planning you can increase that $100,000 of protection to a million dollars or more.

The rules are complicated, but here are 4 easy tips to increase your limits.

1. The S100,000 limit is per account per bank, including all of its branches. You can deposit $100,000 at National City, $100,000 at Huntington, and $100,000 at Bank One, and that gives you total protection for $300,000.
2. Open a joint account with your spouse. You each receive another $100,000 coverage in addition to the individual account protection. In other words, you can protect $100,000 in your name, your spouse can protect $100,000, and the two of you can protect $200,000 in a joint account, for a $400,000 total.  You could do that with anyone, not just a spouse.   But remember if the account is joint, each owner has a right to withdraw all the money.  So be careful who you choose.
3. Open a payable on death account and you receive an additional $100,000 for each beneficiary. However, the beneficiary must be your spouse, child, grandchild or parent or bother or sister. Nieces, nephews and in-laws don’t count. For example, you can protect $400,000 in a POD account, which pays at your death to your four kids.  There are similar rules for living trusts.
4. Traditional IRAs, Roth IRAs, SEPs, Simple plans, 457 plans, 401k plan accounts that you can direct, and self-employed retirement plans, receive $250,000 coverage.

Jeff, let’s take you and your wife, each with an IRA.  And lets say you have two children. With a combination of individual accounts, IRA accounts, joint accounts and POD accounts, you could protect $1.3 million at one bank! You can repeat this at each bank and protect even more of your vast savings!

Jeff:  If someone wants to make sure they’re doing the correct steps, what should they do?

Mike:  You can go to the FDIC website. The have a calculator to help you figure out the total coverage. Also you can call 1-877-ask–FDIC and ask them to help you.