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4000 - Advisory Opinions

Clarification of Deposit Insurance Coverage


November 29, 1988

Jules Bernard, Senior Attorney

This will respond to your letter dated October 28 wherein you request clarification of FDIC insurance coverage. Federal deposit insurance is based on the concept of the "right and capacity" in which the depositor holds the account. There are three basic "rights and capacities" in which a depositor may own a deposit: as an individual, as a joint tenant, and in a trust capacity. All deposits that a depositor holds in one "right and capacity" are separately insured from deposits that the depositor holds in any other "right and capacity." The FDIC computes deposit insurance differently for each "right and capacity." Furthermore, it makes no difference whether an account is held in the form of a time deposit, a savings deposit, or a demand deposit.

Personal demand and time accounts are "individual accounts." These are aggregated and insured to $100,000. FDIC regulations provide that all individual accounts (whether checking, savings, or time certificates of deposit) owned by an individual and deposited in one or more deposit accounts in his name will be added together and insured up to $100,000 in the aggregate.

Testamentary accounts are a separate "right and capacity". A revocable trust account (also known as a testamentary account, a tentative or "Totten" trust or a "payable on death" account) evidences an intention that, on the depositor's death, the funds will pass to a named beneficiary. If the named beneficiary is a spouse, child, or grandchild of the owner, the funds are insured for each owner up to $100,000 per beneficiary, separately from any other accounts for the owner. If the named beneficiary of a revocable trust account does not meet the required degree of kinship, (i.e ., is not the spouse, child or grandchild of the depositor) that account would be added to any individual accounts held by the owner in the same bank and insured to $100,000 in the aggregate.

Deposits held in Individual Retirement Accounts ("IRAs") and in accounts belonging to Keogh plans are insured as trust deposits, but under special rules. Like other trust deposits, deposits belonging to these two kinds of retirement plan are insured separately from any other deposits (individual, joint, or revocable) that the beneficiary might own. In addition, IRA and Keogh plan deposits are insured separately from any other trusts of which the depositor may be a beneficiary. But IRA deposits are not always insured separately from Keogh plan deposits.

The first step is to consider the identity of the settlor of the IRA on one hand and the Keogh plan on the other. If the settlors are different, the deposits held in the IRA are insured separately from any deposits belonging to the Keogh plan. For example, a nurse may have an IRA, and may participate in the Keogh plan established by the doctor who employs her. The nurse's IRA deposit would be insured separately from the Keogh plan's deposit.

However, if the two settlors are the same person-- e.g ., if the doctor has an IRA--the FDIC must proceed to the second step: considering the identity of the trustee of the IRA and of the Keogh plan respectively. If neither trustee is a bank that is insured by the FDIC, then the two accounts are aggregated for insurance purposes. If, however, one of the trustees is an insured bank, the accounts are not aggregated unless the other trustee is the same bank.

Enclosed is a copy of the FDIC's pamphlet "Your Insured Deposit" which answers many of the most frequently asked questions about deposit insurance coverage. Your bank may order, for your customers, additional copies at no charge by contacting: Design and Printing, Federal Deposit Insurance Corporation, 550 17th Street, N.W., Washington, D.C.

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