Understanding How to
While changes in bank insurance regulation mean that bank deposits are currently insured by the FDIC up to $250,000, many depositors remain unaware of significant additional coverage available for individuals and families.
On top of the $250,000 in coverage afforded each individual, he or she is entitled to an additional $250,000 in joint coverage at an individual bank, according to Robert Hamaker, SVP Operations. In other words, if you had a joint account with another person worth a total of $500,000, you would be considered owner of half of the account. Your $250,000 share would be fully covered by FDIC insurance.
"That can add quite a bit to a family's coverage," Hamaker said. "But what can dramatically increase coverage are revocable trust accounts. This is where someone sets up a trust account and names one or more beneficiaries. A family member or any person can be a beneficiary, with each beneficiary allowed $250,000 in coverage. In addition, a charity or non-profit organization can also be named a beneficiary."
It's a little-known fact that this comprehensive coverage with joint and revocable trust accounts means that a family of four could have $5,000,000 in FDIC coverage - 20 times what most Americans assume is the extent of their deposit insurance protection.
The level of available insurance provides great peace of mind while eliminating the need for a large number of accounts at separate banks and the complicated bookkeeping that it generates.
Previous FDIC regulations with revocable trust accounts stipulated the need for family relationship requirements, which no longer applies. "Here's an example of how one of these accounts might work," Hamaker explained. "Say I'm an account-holder of a revocable trust account, and I name two children as beneficiaries. In addition, I could also add on two different qualified non-profits. Each of the four beneficiaries would have up to $250,000 of coverage, so it would insure that account to $1,000,000.
"There are no limits to the size of the revocable trust account or the number of beneficiaries that can be named. This greater coverage available under FDIC rules is important, given the common perception of coverage," Hamaker said.
Understanding and maximizing FDIC coverage to its fullest extent can help provide convenience as well as comfort. Because depositors may assume that balances above $250,000 are not insured, they deposit the balances in other banks, generating multiple statements and the chore of additional record keeping. Hamaker noted that they also miss out on the benefits that can be derived from larger deposits being held at a single institution, such as higher interest rates to keep their funds growing.
According to Hamaker, while the additional FDIC coverage with joint and revocable trust accounts provides extra peace of mind, bank customers shouldn't add relationships simply to increase insurance coverage.
"You want to be comfortable with these types of ownerships first," Hamaker said. "That's the priority. If you add someone as a joint owner or as a beneficiary, there is significance in that. They become a joint owner or they have a claim to your estate when you pass away. We have a responsibility to make sure that clients understand the exact nature of what's involved when they set up relationships or account ownership structure. If you are comfortable with these structures, you have the added benefit of this additional coverage.
"Financial institutions remain a safe place to put your money. Along with individual insurance up to $250,000, there are a number of ways to increase your protection. Your banker should be a go-to source to help you understand how deposit insurance works. In addition, the FDIC offers educational tools and resources."
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