FDIC Deposit Insurance, A Review, Part III

Varied Joint Accounts
Probably one of the most confusing features about FDIC Insurance is its application to joint accounts. Fred has a single name account with $100,000 in it. Wilma also has a single name account with $100,000 in it. Fred and Wilma together, as you may remember, have a joint account at this same institution with $200,000 in it, so each are covered for $100,000 in the joint account, as well as for $100,000 each in each of their single ownership accounts. As a couple, then, they are insured for $400,000 of their funds in any one financial institution.

It will not make a difference how the joint account is titled, if it's Wilma or Fred, or Fred or Wilma. Nor does it make any difference whose social security number is on the account. Each is covered for his or her interest in the joint accounts up to a total of $100,000.

Now you can get into the "In Trust For" accounts, etc. There is no need to go into a great deal more detail about how to figure what and how much is covered in any instance, but FDIC has done all the work for you. Just go on the Internet to www.fdic.gov, and click on helpful little "Ask Edie". Fill in the information in the blanks as it takes you through, and she will tell you precisely how much is covered and what is not. It couldn't be easier! Take advantage of the service and you'll know that you're telling your customer correctly.

Kinship
FDIC gets very specific about who is related to whom and how. Revocable trust accounts are insured up to $100,000 per grantor (owner) for each qualified beneficiary. The agency makes it very clear, however, that separate deposit insurance coverage is available only when the specified relationship requirement is met, and the beneficiary is named specifically in the account documentation.

Customer service people get many questions about eligible relationships, and it's important to remember the FDIC guidelines and requirements.

A qualified beneficiary is a parent, sibling (brother or sister) spouse, child or grandchild. Also qualified - step-children, step-grandchildren, adopted children, and adopted grandchildren.

They go on to say that "child" includes a biological child, adopted child and stepchild. "Grandchild" includes a biological child, adopted child and stepchild of any of the owner's children. "Parent" includes a biological parent, adoptive parent, and stepparent of the owner. "Brother" includes a full brother, half brother, brother through adoption, and stepbrother. "Sister" includes a full sister, half sister, sister through adoption, and stepsister.

Funds in a testamentary account held for the benefit of niece, nephew, or friend, do not meet the relationship requirements. Any accounts so held would be added to the owners single ownership accounts.

It is important to remember that each beneficiary is insured up to $100,000. If there are two or more grantors, each grantor is presumed to own an equal share of the account. Therefore, if Fred and Wilma had three children, and Fred opened up an account in trust for the three of them, each of the children's funds would be insured up to $100,000 - or $300,000 for the account. However, if Fred and Wilma were both grantors on the account, it would then be insured up to $600,000.

Learning how to help a customer move funds into joint or trust accounts will help you hold that customer. Of course maximizing FDIC insurance is only one of several factors you need to consider when helping a customer choose an ownership type. Sometimes, there are good reasons for not opening a revocable trust account. However, a new accounts person who understands FDIC rules will rarely lose an account to another financial institution because of insurance limitations. So take the time to understand how FDIC insurance works. You'll be a better salesperson.

Another important point to remember about joint accounts and trustee accounts is that if any one of the joint account holders, grantors, or beneficiaries should die, all funds are then owned by the surviving account holder, and the FDIC insurance would be reduced according to what other funds were eligible to be insured.

As you can see, it is very possible for a depositor to hold funds in a single institution that are insured for far more than $100,000, but very specific requirements must be met to qualify for separate insurance coverage based on the different ownership capacities of the funds. The FDIC has made determining what accounts are covered in what amounts in an easily accessed, simple formula Internet entity. Simply go on www.fdic.gov and click on the question "Are my deposits insured?" When you get to that page you'll see "Edie's" smiling face. She will take you through step by step to answering your customer's questions and determining what is covered. She'll make your life much easier!

Insurance coverage is not affected by the types of deposit instruments the funds are in, such as checking, passbook savings, money market deposits or CDs. Using different types of account instruments will not qualify accounts owned in the same right and capacity for separate insurance.

Also, separate insurance coverage is not determined by social security or tax identification numbers. Instead, the key to determining insurance coverage is to decide the legal ownership category of the funds and then calculate the amount of coverage provided for that category by the deposit insurance regulations.

One last thing bankers should remind their customers of is the fact that deposit insurance is irrelevant except in the event the bank should fail. If your bank is a strong, healthy, sound financial institution, it's unlikely the deposit insurance limits will come into play. Customers should take this into consideration when choosing a financial institution.

Correction: On Training Page 115, FDIC Deposit Insurance - the last paragraph under the sub-heading "Different Banks - Same Company" should read: All deposits maintained by the same person in single ownership accounts in one federally insured institution are added together and insured up to $100,000, whether the account is an individual account, a sole proprietorship account, a convenience account, or other accounts that are not clearly held in a fiduciary capacity. We apologize for any confusion this may have caused.

Copyright © 2002 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 12, No. 6, 7/02