FDIC Consumer News
5 Common Misconceptions About FDIC Insurance ... and the Real Facts
The FDIC receives numerous inquiries every day from consumers who have misconceptions about their insurance coverage. Many of them are people who have worked a long time to save money for their retirement and want to make sure that their funds are insured. To help you avoid the mistakes of others who misunderstood their insurance coverage — especially those who, as a result, inadvertently had some funds over the deposit insurance limit — FDIC Consumer News offers an explanation of the real facts.
MISCONCEPTION 1: FDIC insurance coverage is based on the type of deposit you have. For example, a checking account is insured separately from a certificate of deposit (CD).
The Facts: FDIC insurance coverage is based on how much money each depositor has in one of several "ownership categories" at each bank — single accounts, joint accounts, revocable trusts, certain retirement accounts and so on — not on the deposit product itself.
Let's assume that Jane Smith has both a CD and a checking account at one bank. Both accounts are in Jane Smith's name alone and she hasn't named beneficiaries to receive the funds upon her death. The two accounts are considered single accounts for ownership purposes and they are added together in calculating the deposit insurance coverage; the fact that they are different types of bank products does not provide separate deposit insurance coverage. In this situation, Jane's two accounts would be added together if the bank failed and $250,000 would be insured.
MISCONCEPTION 2: Adding beneficiaries to Individual Retirement Accounts (traditional and Roth) and certain other retirement accounts can increase the FDIC insurance coverage.
The Facts: The FDIC adds together all the retirement accounts that a person has at a bank in the insurance category called "Certain Retirement Accounts" and insures them up to $250,000, regardless of the number of beneficiaries designated to receive the retirement accounts upon the owner's death. That insurance category also includes accounts such as Simplified Employee Pension (SEP) IRAs and self-directed 401(k) and Keogh plan accounts. Self-directed means the consumer chooses how and where the money is deposited.
MISCONCEPTION 3: The more joint accounts you own, the more FDIC insurance coverage you can qualify for.
The Facts: A joint account has two or more owners with equal withdrawal rights. "Some depositors incorrectly assume that each joint account they have at a bank is insured separately, meaning that they can divide money into multiple joint accounts and increase their deposit insurance coverage," said Martin Becker, Chief of the FDIC's Deposit Insurance Section. "But under the rules, the FDIC looks at each person's share in all the joint accounts he or she owns at one institution and that total is insured up to $250,000, no matter how many joint accounts or co-owners there may be." The FDIC also assumes that all co-owners' shares are equal unless the deposit account records state otherwise.
MISCONCEPTION 4: You can increase the deposit insurance coverage of joint accounts at one bank by changing the order of the names or the Social Security numbers on the account.
The Facts: Contrary to some beliefs, titling one joint account as belonging to “Joe and Mary” and another for “Mary and Joe” — or varying the Social Security numbers — will not increase the insurance coverage. The same goes for replacing “and” between their names with “or.” As explained above, Joe’s share of all the joint accounts he owns at one bank, including any he has with someone other than Mary, is FDIC-insured up to $250,000. Mary’s coverage is calculated the same way, regardless of who is named first or whether “and” or “or” is used in the account titles.
MISCONCEPTION 5: The FDIC can take up to 99 years to pay insured deposits when a bank fails.
The Facts: The FDIC occasionally receives calls from depositors about this myth; it often comes from consumers who attended a financial seminar and heard that the FDIC can and will take up to 99 years to pay the depositor’s insured deposits after a bank is closed. This claim is false and entirely without merit.
The truth is that federal law requires the FDIC to pay deposit insurance "as soon as possible." For insured deposits — those within the deposit insurance limits — the FDIC almost always pays insured depositors within a few business days of a closing, usually the next business day. Payment is made either by providing each depositor a new account at another insured institution or by issuing a check to each depositor.
The limited exceptions that may take longer to process primarily are deposits that both exceed $250,000 and are linked to trust documents, and accounts established by a third-party broker on behalf of other individuals. "The delay, if any, for a depositor to receive payment for insured funds is a function of the time it takes for the depositor or their broker to provide missing supplemental information that is needed for the FDIC to complete the insurance determination," Troup explained. "This is supplemental information that is not in the bank's records, and it may include affidavits from depositors and copies of trusts and death certificates. And if there is a delay in receiving insured funds, it is typically a matter of a few business days."
For more information, please call us toll-free at 1-877-ASK-FDIC (1-877-275-3342). You also can go to www.fdic.gov/deposit/deposits for extensive information about FDIC insurance coverage. If you prefer to write to us, you may send an e-mail by starting at https://www.fdic.gov/contact/ or send a letter to the FDIC, Deposit Insurance Section, 550 17th Street, NW, Washington, DC 20429.