To maximize FDIC insurance, accounts must be set up right


WITH BILLIONS of dollars being parked in banks this year as investors wait out a bearish stock market, more certificates of deposit and savings accounts in the six figures are likely.

For depositors who want to keep more than $100,000 in a single bank or thrift, it's a good idea to make sure accounts are set up so that their assets are fully covered by the Federal Deposit Insurance Corp.

FDIC insurance kicks in if a bank or savings and loan fails. Failures are infrequent - eight have occurred this year among more than 9,500 FDIC-insured institutions - but they still happen and can imperil depositors' money. Over the past decade, customers have held $674 million in uninsured deposits at failing banks and thrifts with no guarantee that they would get any of that money back.

"Even placing your funds temporarily in a bank, though the odds are in favor that the bank won't fail, you are taking a chance," said David Barr, a spokesman with the FDIC in Washington.

Barr recalled a case in 1988 in which a man moving from New York to San Diego wired $300,000 to a savings and loan in California, where he planned to purchase a home the following week. Over the weekend, the S&L; failed, and the man was guaranteed only the $100,000 covered by the FDIC, Barr said.

Though the insurance limit is $100,000, it's not 100 grand per account, a common mistake made by consumers, Barr said. Instead, coverage is determined by account ownership. And consumers who properly title accounts can end up receiving far greater coverage than $100,000.

The basic types of account ownership that determine coverage are single, joint and testamentary, in which one or more beneficiaries are named to the account and will receive the funds upon the account owner's death. Retirement accounts, such as IRAs and Keoghs, also are insured separately.

For example, a married couple could receive $800,000 worth of coverage by setting up a joint account and opening an individual savings account for each owner, an individual retirement account and a testamentary, or "payable-upon-death," account naming the other spouse as beneficiary, Barr said. The joint account carries coverage up to $200,000, and each of the other six accounts is insured up to $100,000.

Someone dividing $300,000 among a CD, a checking account and a savings account under single ownership would be insured for $100,000, not $300,000.

Consumer is responsible

The consumer, not the bank, is responsible for how the accounts are set up.

"If a banker or your financial planner told you to set up an account a certain way, and they were wrong and that bank fails, there is no recourse for you as a customer," Barr said.

Banks don't always get it right, Barr said.

Calls to 10 Baltimore-area bank branches inquiring about the maximum coverage for a married couple's joint account resulted in two of them, Mercantile Bank & Trust and SunTrust Bank, giving the correct answer of $200,000. The others said the limit was $100,000, which had been the case until the rule was changed more than three years ago.

The error is "understandable in a sense," said David Wells, chairman of the Maryland Bankers Association and president of Key Bank & Trust in Owings Mills. "Banks have done extremely well for the last 12 years. Almost all the banks are well-capitalized. There are no real quality issues. Insurance has not been an issue."

Consumers should be aware of a push to increase FDIC coverage.

Higher limit proposed

Legislation passed by the House this spring would raise the $100,000 insurance limit to $130,000, with periodic increases to keep up with inflation. Coverage on a retirement account would be twice that at $260,000. Similar legislation is pending in the Senate.

The last time coverage was increased was in 1980, when it was bumped up from $40,000. The FDIC supports increases for inflation, noting that $100,000 in 1980 is worth about $50,000 today, Barr said.

Opponents, including Federal Reserve Chairman Alan Greenspan and Treasury Secretary Paul H. O'Neill, say raising the limit could cause banks to take more risks with deposits.

Some small- and mid-sized banks, largely in the Midwest, have hoped for an increase in the limit to help boost deposits, but others say it's unnecessary.

"We aren't seeing a lot of demand for it," Wells said. "We don't want to pay additional premiums for an increase in coverage."

For information about insurance coverage and how accounts should be titled, check the FDIC's Web site at The site also features an Electronic Deposit Insurance Estimator that allows consumers to plug in their accounts and find out how much coverage they have.

Consumers without access to the Internet can call the FDIC toll-free at 877-275-3342.

Not all products offered by banks and savings and loans are covered by FDIC insurance. Mutual funds, annuities, Treasury securities and safe deposit boxes are not covered.

Maximizing coverage takes planning.

Someone with numerous accounts under single ownership, such as a checking and savings accounts, CD and Christmas Club, will have the balances added together and will be covered up to $100,000.

If the same consumer opens an IRA, that account will be covered separately up to $100,000.

A consumer can have more than one joint account at a bank, although the most coverage one person can receive under joint ownership accounts is $100,000.

Coverage on a testamentary account is $100,000 per qualified beneficiary, which includes spouses, children, parents, grandchildren and siblings. A parent naming three children as beneficiaries would be insured up to $300,000.

If an unqualified beneficiary, such as a niece or friend, is named, the money will be treated for insurance purposes as if it's a single-ownership account.

Consumers might find that they have to restructure their accounts to be fully covered for their deposits if two banks they do business with merge. In those cases, consumers have a six-month grace period after the merger to make adjustments. If their money is locked into CDs, they will be able to wait until the CDs mature before making adjustments.

To suggest a column idea, contact Eileen Ambrose at 410-332-6984 or by e-mail at

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