|New insurance for two common types of
bank account will reduce losses
deposit insurance easier for consumers and bankers to understand has been a priority for
the FDIC. That's because confusion over the insurance rules has caused losses to some
depositors who mistakenly believed all their funds were within the insurance limit, only
to find out otherwise when their institution failed. And that's why the FDIC has
simplified the rules for two common types of accounts-joint accounts and payable-on-death
"These changes will greatly benefit consumers," says FDIC Chairman Donna Tanoue.
"The new rules will be much easier to understand, and therefore it will be much less
likely that a consumer will unknowingly exceed the $100,000 insurance limit."
"When ordinary depositors lost money as the result of being over the $100,000
insurance limit, the money usually was in joint accounts and POD accounts," adds
Chris Hencke, an attorney in the FDIC's Legal Division in Washington. "The new rules
should greatly reduce confusion about the insurance coverage."
The new rules went into effect April 1, 1999. They apply to all existing and future joint
accounts and POD accounts, including existing certificates of deposit. The following
overview and examples are intended to help you understand the rule changes and what they
can mean in terms of your deposit insurance coverage.
For many years, FDIC insurance coverage for joint accounts (those owned by two or more
people) was calculated using a two-step process. Step One: All joint accounts owned by the
same combination of people at an insured institution were added together and insured up to
$100,000. Step Two: Each person's shares in all joint accounts at that institution were
added together and insured up to $100,000. But many people were unaware of the first step.
As a result, they mistakenly believed that a joint account owned by two people would be
insured up to $200,000, when the actual coverage was $100,000.
How do the new FDIC rules deal with this problem? Basically, we eliminated the first step
but kept the second step. "In other words," Hencke says, "the FDIC will
simply look at each person's share in all joint accounts at an institution and insure that
person to $100,000-period. That should be easily understood by the average
depositor." Now, for example, a joint account owned by two people is insured up to
$200,000 (if that's the only joint account they have at the bank).
As before, your share in joint accounts will be covered to $100,000. This is in addition
to the FDIC insurance you receive for other types of consumer accounts, such as
individual, payable-on-death, and retirement accounts.
POD accounts are those where the depositor indicates in the bank's records that, upon his
or her death, the funds will be payable to one or more named beneficiaries. These accounts
also are referred to as testamentary, Totten trust or "In Trust For" accounts.
Each beneficiary's interest in a depositor's POD accounts is insured up to $100,000 at an
institution if certain conditions are met. Under the "old" rules, one condition
for receiving this generous insurance protection was that the beneficiaries be the
depositor's spouse, children or grandchildren. This meant that a parent's POD accounts
that listed three children as the beneficiaries would be insured up to $300,000, not just
Some people mistakenly believed, however, that each beneficiary of POD accounts was
entitled to $100,000 of insurance, regardless of the relationship.
"In most of the cases where this misunderstanding resulted in an actual loss of money
after a bank failure, we found that the named beneficiaries generally were parents,
brothers or sisters," Hencke says.
To avoid this confusion in the future, the FDIC has extended the list of
"qualifying" beneficiaries in POD accounts to also include the depositor's
parents and siblings. Note: step-parents, adopted children and similar relationships also
qualify under the new rules, but others, including in-laws, do not. POD accounts also
continue to be separately insured from other types of deposit accounts, such as individual
accounts, joint accounts and retirement accounts (assuming that all of the relevant
conditions are met).
For More Information
The FDIC is revising its deposit insurance publications for consumers and bankers,
including the popular "Your Insured Deposits" brochure. Also, we have updated the
insurance-related information posted on our Internet site at www.fdic.gov, including the
"Electronic Deposit Insurance Estimator" service that allows consumers to easily
check whether their accounts exceed the $100,000 insurance limit.The bottom line: The FDIC
wants you to be an informed consumer and to have complete confidence your deposits are