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Test Your Deposit Insurance IQ
Do you think you know how FDIC insurance works? Take our quiz and find out.
1. If your FDIC-insured bank or savings association fails, the $250,000 federal insurance coverage would include both the money you've deposited and the interest you've earned. True or False?
2. Historically, insured funds are available to depositors shortly after the closing of an insured bank. True or False?
3. FDIC insurance protects more than just deposits. If you purchase stocks, bonds, mutual funds or annuities at an FDIC-insured bank, the FDIC also will protect those investments against loss. True or False?
4. The basic insurance limit is $250,000 per depositor per bank but it is possible to qualify for more coverage under the FDIC's rules. True or False?
5. You're thinking about taking a $300,000 lump-sum, eligible rollover distribution from your employer's qualified pension plan and depositing it into two different IRAs at your bank. That's safe to do because each IRA would be separately insured to $250,000. True or False?
6. You want to open a "payable-on-death" account naming your two children as the beneficiaries. Under the FDIC's insurance rules, this account qualifies for $500,000 of insurance — $250,000 for each eligible beneficiary — not $250,000 in total. True or False?
7. You have three different joint accounts at the same bank — one for $250,000 with your spouse, another for $250,000 with your sister, and a third for $250,000 with your brother. Because you own each account with a different person, each account qualifies for $250,000 of insurance. True or False?
1. True. If your insured institution fails, FDIC insurance will cover your deposit accounts, including principal and any accrued interest, up to the insurance limit.
2. True. The FDIC protects insured depositors by arranging an immediate sale to a healthy bank or paying depositors by check within a few days after a bank closing. And remember that since the start of the FDIC in 1933, no depositor has ever lost a penny of insured deposits. Note: Certificates of deposit (CDs) purchased or arranged through a broker may take longer to be paid because the FDIC may need to obtain the broker's records to determine insurance coverage.
3. False. The FDIC does not insure the money you invest in stocks, bonds, mutual funds, life insurance policies, annuities or municipal securities, even if you purchased these products from an insured bank. The FDIC also does not insure U.S. Treasury bills, bonds or notes, although those investments are backed by the full faith and credit of the United States government.
4. True. You may qualify for more than $250,000 in coverage at one insured institution if you own deposit accounts in different ownership categories as defined by the FDIC. The most common ownership categories are single, retirement, joint, and revocable trust accounts (accounts in which the owner retains full control over the money during his or her lifetime). Your deposits in each of those categories are separately insured to $250,000. If certain conditions are met, your revocable trust accounts are insured up to $250,000 for each beneficiary. For more details, consult the FDIC publication "Your Insured Deposits" (www.fdic.gov/deposit/deposits/insured).
5. False. All of your self-directed retirement accounts (you decide where the money is deposited) at the same insured bank are added together and the total is insured up to $250,000. Opening multiple IRAs or adding beneficiaries will not increase insurance coverage.
6. True. In general, the owner of payable-on-death (POD) accounts and other revocable trust accounts at a bank is insured up to $250,000 for each "eligible beneficiary." To be eligible, a beneficiary must be a living person, a charity or a nonprofit organization (the latter two must be valid under IRS rules). If the owner names five or fewer beneficiaries, he or she will qualify for $250,000 of coverage for each different beneficiary named. Different rules apply, though, if there are six or more beneficiaries. Using our example, and assuming this is the only POD account you have at this bank, if you establish a POD account naming your two children as beneficiaries it would be insured up to $500,000.
7. False. For each $250,000 joint account, your ownership interest would be $125,000 as the interests of the co-owners are presumed equal. This means your interest in all three joint accounts would be $375,000. But under the FDIC's rules, each person's interest in all joint accounts at the same institution is insured up to a combined total of $250,000. In this example, you'd be uninsured in the amount of $125,000.
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