FDIC Insurance Q&A: Businesses, Joint Accounts, CDARS, WaMu, and More

I’ve had a lot of questions about FDIC insurance recently (for obvious reasons), and have been getting a good share via e-mail as well. Took some research to find all the answers, but here they are:

Will multiple accounts at the same bank, like having both a checking and savings account, increase my coverage limits?
Depends. It’s how the account ownership is titled that matters. If it is an individual account, then you get $100,000 per individual at that bank, no matter how many different accounts you open up. To get more coverage, you could open up an account at another bank. However, if you open up a joint account with someone else that can increase your limits.

How much FDIC coverage can a couple get at one bank?
If structured properly, a couple such as a husband and wife can shield up to $400,000 at one single bank without involving legal trust vehicles. In addition to the $100,000 per individual account, if two people open a joint account then each will have up $100,000 in coverage ($200,000 total for the account) [Source]. If you throw in revocable trust accounts, a couple can theoretically shield up to $600,000 at one institution:

altext

Are business bank accounts covered by FDIC insurance?
Yes, but you have to be careful. Since legally there is no difference between a sole proprietorship and an individual, one cannot gain more coverage at a single bank by opening a “business” account when you are a sole proprietorship. The business account would still fall under the $100,000 individual cap. However, in the case of partnerships, corporations, and LLCs, because these are separate legal entities, they do get a separate $100,000 per entity.

The deposit accounts of a corporation, partnership or unincorporated association are insured up to $100,000 provided the corporation, partnership or unincorporated association is engaged in an “independent activity.” The term independent activity means that the entity is operated primarily for some purpose other than to increase deposit insurance coverage. [Source]

Where would you put $1,000,000 in cash if you had to? Spread across 10 banks (or more to cover accrued interest)?
First of all, there are very few scenarios where I’d want $1,000,000 sitting around in cash. I’d probably choose to take more risk with it. But I really don’t think I’d bother with 10+ banks. Most likely, I would place it in a retail money market fund at a reputable firm, like the Vanguard Prime Money Market Fund. That way, even if Vanguard goes bankrupt, this will not affect the underlying conservative investments. A retail money market fund has never “broken the buck”. Alternatively, I would buy traditional US Treasury Bonds or TIPS either directly or through a Treasury money market fund.

What about the Certificate of Deposit Account Registry Service (CDARS)?
Another way to increase FDIC insurance are services like that of CDARS.com. Essentially, they spread your large deposits into $100k chunks across a network of banks, but without any effort on your part. From their website:

In general, the FDIC insures up to $100,000 per customer per financial institution. So, you could run around to many institutions to deposit your funds to receive the same coverage you get using CDARS. Or you can place your large-dollar deposit with a network member. The member bank breaks your funds into smaller amounts and places them with other banks that are members of a special network. Then, those member banks issue CDs in the amounts under $100,000, so that your entire deposit is eligible for FDIC insurance. By working with one member bank, you can receive insurance from many.

According to this Bankrate article, due to the added costs of this system CDARS rates are usually about 0.15% lower than the “normal” CDs from the network banks. Also, the network banks seem to be smaller local banks, which may not offer the most aggressive rates in the first place.

Am I worried about my money at Washington Mutual?
Not really. WaMu is much better financially than IndyMac was. But again, due to the realities of fractional-reserve banking, if people panic and start pulling out tons of money from WaMu, then they can still fail due to liquidity issues. I am not going to be one of those people. If it fails, it fails. Most banks on the FDIC “problem list” do not fail. I have faith in the FDIC process, and I still have much less than $100,000 in my accounts. Finally, I never keep all my funds in any one bank. I can still run my day-to-day cashflow needs from other banks.

Comments

  1. Is there risk in using 1 particular investment brokerage? I realize this doesn’t really have anything to do with FDIC insurance, which I assume doesn’t apply to anything in such accounts, so I’m really asking about what the risks are and if there is a reason to diversify brokerages.

    If I have $1 million invested through Vanguard, half spread among a couple of Vanguard funds and half spread among non-vanguard funds, do I stand to lose anything if the company Vanguard itself fails (not the underlying stocks in each fund)?

  2. What happens, though, if the FDIC goes broke? Doesn’t matter how many accounts you have spread, does it?

  3. In response to Nick’s comment, if this happens there will be mass panic and it will become the great depression all over again.

    What about smaller community banks. I know you touched on WaMu, but would smaller community banks be in danger of having to be bailed out as well?

  4. heather says:

    great post!

    If the FDIC goes under, I’d say it is time to hoard food and water.

    Or, were there people in Argentina who were able to weather their financial crisis, short of keeping money offshore?

  5. What would happen to WaMu “Savings for Success” accounts if WaMu fails? They’re kind of like a CD. I am wondering because I have one with a 6.50% APY until next February. Would I still get that interest or would it be liquidated?

  6. If the bank were to go under your APY would no longer be guarenteed. However, in the case of IndyMac, FDIC did state they would continue to pay out on the interests on the majority of investment vehicles until the end of their terms without changing rates.

    Whether this remains is unguarenteed but so far is looks like yes.

  7. I have also thought that the Vanguard Prime Money Market Fund is a good place for excess cash. But I have two questions: How does Vanguard’s unusual ownership structure really work? How might that ownership structure come into play if the assets in the Prime Money Market Fund declined in value. I.e., last year Wachovia used its own funds to bail out its Evergreen money market fund, because “breaking the buck” would affect Wachovia’s reputation. If the Vanguard Prime Money Market Fund were at risk of breaking the buck, who could come to the rescue; with Vanguard’s coop ownership structure, where is there capital available to bail out the money market fund?

  8. IndyMac went backrupted just a few days ago…….. I passed by their headquarter in Pasadena yesterday and spoke with one retired teacher. He said he had $200,000 in their CDs. But he only got $171,000 back in cash; the rest he doesn’t know. How sad…………

  9. Hi there,

    I asked this before, but I don’t believe you responded. I wouldn’t normally ask this question in polite company, but given the nature of your blog, how much do you earn on a yearly basis and from what different sources? Also, how much does your wife earn?

    I believe both are valid questions.

    Thank you,
    Matt

  10. I went to my local WaMu branch to investigate some of the IndyMac fallout. I was told by a WaMU rep that I could create multiple DBAs and each would have its own $100k limit. So technically you can create unlimited DBAs of yourself if what this person said was correct. Is she wrong?

  11. In your example I believe if the individuals had also opened IRA accounts, they would be insured for the amounts in those accounts up to $100k as well.

  12. heather says:

    Matt -

    I don’t really like seeing off-topic comments, which yours is, but I’ll help you out.

    Read these posts:
    http://www.mymoneyblog.com/arc.....reers.html
    and
    http://www.mymoneyblog.com/arc.....ealed.html

  13. I don’t really worry about the FDIC going bankrupt. The FDIC has an emergency fund, and then the ability to raise additional funds using other means. All the banks that participate in FDIC as a whole have an interest in keeping the trust of FDIC alive. So does the gov’t – Look at JP Morgan and Fannie Mae. If all else fails, the money printing presses will go crazy and we’ll just have to deal with inflation instead.

  14. Klein – I do not wish to disclose the exact breakdown of our incomes.

  15. Siggyboss says:

    FDIC won’t go bankrupt: The Federal Reserve will print whatever money the Federal Government needs to bail it out. Of course, that will cause prices to accelerate upward.

    Washington Mutual is Risky: Just as financially bad as IndyMac, but hasn’t had a bank run as of yet. Only Countrywide is likely worse, which had a small bank run last year.

  16. ghost – I don’t think multiple DBAs should work especially if you are a sole prop. You could try and getting separate EINs for each one instead of using your SSN over and over, but I still wouldn’t risk it given the consequences of being wrong and the many other options available.

  17. Justjoeguy says:

    Multiple DBA’s won’t work because you are setting them up just to get the insurance and the government will know these companies aren’t doing anything except protecting your money in the event of a bank failure because they have access to your return and the companies’ returns. Believe me the criminals who run the economic system will find a way to force WAMU out of business eventually. Don’t be mislead by political parties. They are just a facade.

  18. Jonathan – Thanks for the reply. I don’t think I’d have been willing to risk that even if I did have that much money to sock away. :)

    Does anyone know if there are any decent, interest-bearing bank options in the cayman islands? It would be nice to know just in case someone were to come into a whole lot of money that they didn’t want to keep in the U.S…… :) (NOTHING ILLEGAL!) :)

  19. Thanks Justjoeguy and Jonathan!

    Justjoeguy – What sort of conjecture is this about an evil plot to collapse banks like WaMu? Is this from the conspiracy that martial law is imminent and we’ll all be rounded up and put into concentration camps by the NWO? Or what? What are your recommendations?

  20. Regarding your incomes. Why is it that your net worth is fair game, but your incomes (Directly related to your net worth, I imagine) are not?

    I personally don’t understand why anyone is reticent to share their incomes at all, but particularly in a blog, the main purpose of which is to show how much money you are able to save. To offer up your solutions and advice on growing ones net worth and to post such large numbers can really make a struggling saver feel bad.

    I’d feel better knowing that you make a fair amount more than I do.

    Would you consider sharing some general income information without a full breakdown? Why not be honest about everything?

  21. This is a great blog. I agree with Klein, I think is very valuable if you can share the income break down, however if you can’t, what about more generic information?. It will make more sense of how your monthly savings is increasing, etc…

  22. No more off-topic comments here. See the comments on my Net Worth post for further discussion of income/expense stuff.

  23. In MA, state-chartered banks are covered by DIF, which covers any amount over $100K. So between FDIC and DIF, 100% of deposits in MA banks are insured. Are there similar supplemental state-run insurance programs in other states?

  24. Justjoeguy says:

    Ghost,
    I am not a kook, it’s just that short sellers have forced quite a few companies nearly into bankruptcy or insolvency when the conditions and circumstances of the companies involved didn’t warrent it. Just yesterday the SEC changed the short sellers rule on about 25 big financial companies in an attempt to stop the manipulation. Almost nobody knows about it! As for my recommendation, put your money in different banks or make sure you have multiple insured accounts at any one bank. The criminal billionaires are out there and they want your blood.

  25. Phoenix says:

    My mother just learned that adding a beneficiary to an FDIC insured account increases the insured amount. So if you have $200,000, you’re covered for the $100,000 and your beneficiary for the other $100,000.

    If a couple includes their spouse as beneficiary, that may mean $400,000 insured if each has $200,000 in their account and lists the spouse as beneficiary. This would be without the inclusion of a joint account. So the couple may be able to insure more than the $400,000 at a single institution once they add joint accounts.

    This could cut down the hassle of having accounts at a bunch of different banks.

  26. Does anyone know what’s with that magic number $100K. Why not $50K or not $500K. Are there any banks that offer more than $100K of insurance per account per customer ?

  27. Justjoeguy – Thanks for the reply. As I barely have any money to begin with, I think I only have to worry about the FDIC insuring my less-than-100k dollars. :)

    That’s a terrible picture you’re painting though! Scary!

  28. Sharon Buckler says:

    My mother in law has a a cd balance of over 100K that is held in a revocable trust. My father in law passed away last Thanksgiving. The trustees are my husband and my son. What amount will FDIC cover?

  29. Paul – I remember reading articles about the FDIC increasing the limit to 250k due to inflation, but I guess that got stalled.

    Sharon – I’d read this part of FDIC.gov: link

    “Determining coverage for living trust accounts can be complicated and requires more detailed information about the FDIC’s insurance rules than can be provided in this publication. If you have a living trust account, contact the FDIC at 1-877-275-3342 for more information.”

  30. TarponCrest says:

    Greetings

    I like the research you did very helpful in these turbulent times. Do you know if IRA’S have any safe haven with the FDIC? Roth’s, Self employed ones etc. I think 401K and 403b have a $250000.00 coverage not sure if it is through the FDIC or not but I wonder what about all other IRA’S?

    Also Wamu is pretty solid when it comes to its exposure to the mortgage losses given enough time it will come out of it O.K. It is people short selling its stock in the market and panicked investors/ customers dumping all there positions/withdrawing all there money that will really cause Wamu to get in trouble ( if it’s done fast like Monday July 14, 2008 when Wamu stock crashed almost 40% in one day went from $5.00 to a low $3.00 in less than 45 minutes)

  31. Thanks for this post! I work at a bank, and lately, all of my clients are asking questions about FDIC coverage. I find that most people don’t know enough about how FDIC coverage stacks up on their accounts. I would encourage everyone to visit http://www.fdic.gov/deposit and read up on it.

    You mentioned the different ownership categories that are insured separately: individual accounts and joint accounts. The other common ownership category is “payable-on-death” (POD) accounts. These are accounts where you have assigned a qualifying payable-on-death beneficiary. These accounts are in their own separate “bucket” as far as FDIC goes, they are insured separately from other individual and joint accounts. POD accounts can also be called “totten trust” or “in trust for” (ITF) accounts. Different banks use different terminology, but it’s all the same thing.

    These POD accounts are insured for $100,000 per owner for each beneficiary. That means, “husband POD wife” is insured for $100,000, “husband POD 2 children” is insured for $200,000, “husband and wife POD 3 children” is insured for $600,000 (each owner can put in $100,000 for each of the children).

    You’re basically multiplying the number of owners by the number of beneficiaries. This is easy, except that people get tripped up on those accounts that have one owner and one beneficiary. No, this type of account is NOT insured for $200,000; it’s only insured for $100,000.

    To qualify, the beneficiary must be the owner’s spouse, child, grandchild, parent or sibling. Adopted and step children and siblings qualify. But other people, including in-laws, do not qualify.

    Someone above mentioned trusts. Keep in mind, revocable trusts are FDIC insured in the same category as POD accounts. Only irrevocable trusts are in a separate category.

    The magic number $100,000 applies to all accounts, except IRAs. The coverage limit on self-directed IRAs was increased a couple of years ago to $250,000. That’s also a separate ownership category that’s insured as a separate “bucket” of money, apart from your other accounts.

  32. Anyone knows of how I can deposit some money legally offshore in a reputable company by not going oversees? ANYONE?
    thanks,
    mona

  33. Or, you could just put all of the cash into a Vanguard Treasury MMF. The fund invests only in securities directly backed by the full faith and credit of the US Treasury. This arrangement is actually more secure than FDIC — as evidenced by Treasuries receiving a higher credit rating on default swaps than FDIC-backed CDs.

    Then, you could also stop all the contortions and game-playing involved in dividing your cash position all over the place. A Treasury MMF is just as secure whether you’re saving $5,000, $500,000, or $50,000,000. It also pays a more reasonable rate of return than most bank accounts.

  34. If you open an interactive brokers account, they have additional insurance they purchase for their clients for a total insured of 1 million cash and 30 million securities.

    You can’t beat that.

  35. Is there a difference between FDIC insured and member FDIC ?

  36. @ME,
    I don’t think there is any difference between FDIC insured and member FDIC. Both are same.

  37. If I simply added my mom and dad as beneficiaries to my personal savings account, which has more then 100 K, would I increase FDIC protection on the account from $100,000 to $300,000? I am getting controversial suggestions from different people.
    Thanks,
    G

  38. If I simply added my mom and dad as beneficiaries to my personal savings account, which has more then 100 K, would I increase FDIC protection on the account from $100,000 to $300,000? I am getting controversial suggestions from different people.
    Thanks,
    Gene

  39. Jonathan,

    To clarify. In your example, a married couple can be insured up to 400K at one bank. To be insured up to 600K, you need to open an joint account other than your spouse, like your relative or your kids. FDIC see joint account with husband and wife as 50/50. For example, you have a single account with 100K and a joint account with your wife 100K. FDIC see you with 150K, 50K would not insured.

  40. Eric – No, I disagree. Please read the FDIC site carefully.

  41. Jonathan,

    I always thought it was 600K until my wife explained to me it was not the case. It’s a little more complicated. FDIC site does not do a good job explaining this.

    “Accounts set up under “individual” and “joint” ownership are added together to determine whether they exceed the FDIC’s $100,000 per person, per bank limit on deposit insurance. ”

    http://articles.latimes.com/20.....i-perfin20
    http://www.moneybluebook.com/i.....ank-fails/

  42. Please use EDIE, the new official FDIC insurance estimator.

    http://www.fdic.gov/EDIE/

  43. The LA Times article you quoted was in error. They subsequently published a correction:

    The Personal Finance column in Business on Sunday erred in how it described insurance of individual and joint accounts. It said that each person’s interest in individual and joint accounts is added together to determine that individual’s insurance coverage. In fact, individual and joint accounts are insured separately. Therefore, you could have an individual account worth $100,000 and a joint interest in a $100,000 joint account and all of your deposits would be fully insured.

    Why they didn’t fix the article online, I don’t know. I think it does a disservice to the public and harms their credibility.

  44. Thanks for the clarification.

  45. Quote:

    “Am I worried about my money at Washington Mutual?
    Not really. WaMu is much better financially than IndyMac was…”

    One more proof that noone knows anything… The reallity is always different. BTW – your rules about FDIC limits are also not correct – they are more complex and you certainly cannot insure 600K. Check FDIC site…

  46. Good job ignoring the rest of my post. :) Two people can insure 600k, as shown above. I have read the FDIC site extensively. You must use joint and revocable trust accounts.

  47. NICK STANELLI says:

    IF MY BANK FAILS, EXACTLY HOW LONG DOES THE FDIC
    (ACCORDING TO THEIR RULES) HAVE TO GIVE ME BACK
    MY MONEY ?? I’VE HAD SEVERAL CONFLICTING “ANSWERS”
    TO THIS QUESTION IN THE PAST. PLEASE CLARIFY FOR ME.
    “THANKS” FOR YOUR ATTENTION.

  48. NICK STANELLI says:

    I SUBMITTED A QUESTION TO YOU AT 3:33 PM (PDT)ON OCTOBER 26th. IT IS NOW 12:15 AM (EDT)ON OCTOBER 30th.
    I HAVE YET TO RECEIVE YOUR ANSWER TO MY QUESTION.

    HAVE YOU DISREGARDED MY QUESTION ?? CAN I STILL
    EXPECT AN ANSWER FROM YOU ?? PLEASE ADVISE ME,
    SO I DON’T WASTE ANYMORE OF MY TIME. THANK YOU.

  49. NICK STANELLI – This site is a privilege, not a right. Jonathan doesn’t have to do any of this. He is not your personal paid adviser or consultant so you might want to show a little respect or go elsewhere.

    That’s my $.02.

  50. Unpaid Advisor says:

    Nice Comeback Ghost. However, this is a good question. The answer is, there is no time frame for them to pay you back, that is why FDIC is an illusion of safety, just like seatbelts on an airplane, it comes in handy, but when the plane is going down, useless. The FDIC will pay you, but when they do, the value of your dollar will most likely be worth less.

  51. Peter NYLI says:

    I Just received a letter from Chase Bank in NY and they are telling me that if I get more then .50% interest on any account in the Bank the FDIC will NOT COVER ANY OF MY MONEY in the account that is getting that HIGHER RATE of .50% (less then 1 % ONE PERCENT!!!) Why is this and they are now really putting a limit on the amount of intrest I will get paid. This is heading to REAL Socialisim / Goverment Control
    If I am not understanding this please explain. Thank You
    Peter

  52. Andy Schepper says:

    Great information. I have bookmarked your site and will be back.

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