Misconceptions about FDIC Insurance

Misconceptions about the nature and extent of deposit insurance from the Federal Deposit Insurance Corporation (FDIC) can be risky. Especially to be avoided is a depositor’s false impression that all of his funds in a bank are insured when, in fact, some of the money is over the insurance limits, thus exposing it to loss if the bank fails. Here are some of the most prevalent erroneous beliefs about FDIC deposit insurance:

  • The most any consumer can have insured is $100,000. In fact, accounts at different FDIC-insured institutions are separately insured, so the same consumer may qualify for up to $100,000 at each institution. Furthermore, the same consumer may qualify for more than $100,000 in coverage at each bank if accounts are owned in different “ownership categories.”
  • The FDIC insures any product sold by a bank. Dispelling this idea is especially important now that banks, directly or through other companies, have branched out into such financial products as stocks, bonds, mutual funds, annuities, and other insurance products. The FDIC insures the more conventional bank products, such as checking accounts and certificates of deposit.
  • Revocable trust accounts are always insured up to $100,000 for each beneficiary. Generally, the owner of a revocable trust account is insured up to $100,000 per beneficiary, but that is only for “qualifying beneficiaries,” meaning the depositor’s spouse, child, grandchild, parent, or sibling. Portions of the trust payable to any nonqualifying beneficiaries would be insured as the personal funds of the owner, only up to a total of $100,000, along with any deposit accounts the owner may have alone at the same bank.
  • Depositors could have to wait up to 99 years for their money in insured accounts if a bank fails. The origins of this falsehood are sketchy, but, in any event, federal law requires payment “as soon as possible” after a bank failure. In the past, this has meant no more than a few days.
  • Changing the order of names or Social Security numbers can increase coverage for joint accounts. This practice is of no consequence whatsoever. The FDIC will just add each person’s share of all joint accounts at the same institution and insure the total up to $100,000.