How to Make the Most of FDIC coverage

The current limit for protection by the Federal Deposit Insurance Corporation is $250,000. However, a family of five can get coverage for $3.5 million without having to send money to numerous banks. Families will likely benefit more by shifting cash from investment companies to banks because money market deposit accounts recently paid up to 0.9%. 

The FDIC protection limit of $250,000 is “per depositor, per insured depository institution for each amount ownership category.” The term “category” refers to the title of the account, meaning that both an individual’s savings and checking account at the same bank fall under the same category, but an individual’s retirement account at the same bank is considered a separate category.  

A family of five (husband, wife, and three children) can protect up to $3.5 million, at a single bank, by taking the steps listed below:

• Husband and wife have $500,000 in a joint account and they each also have individual accounts and IRs worth $250,000 apiece = $1.5 million
• Husband creates a revocable trust worth $250,000, naming wife as beneficiary = $250,000
• Wife creates a revocable trust worth $250,000, naming husband as beneficiary = $250,000
• To determine the coverage limit for the revocable trusts, you multiply the number of grantors (two: husband and wife) by the number of beneficiaries (three: the three children), and then you multiply that number by the $250,000 in coverage = $1.5
• Grand total = $3.5 million in FDIC coverage

See Jack Hough, How Families Can Get $3.5M in FDIC Coverage, Smart Money, Feb. 14, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.