Answers to your questions about FDIC insurance.
Today, I want to answer some of the listener questions I received in response to last week’s episode about FDIC insurance.
Patti M. e-mailed me with this question:
“If you have a CD for $100,000 in an FDIC-insured bank and the bank failed, would the interest accrued also be insured, or would you be down to $100,000?”
Thanks for the question, Patti.
Keep Accounts at Multiple FDIC-Insured Banks
The answer is short, but less than sweet. The $100,000 FDIC-insurance limit for deposit accounts applies to savings plus interest. If your $100,000 account were to grow, say, to $110,000 due to interest, the $10,000 that exceeds the limit would be uninsured.
One solution would be to keep accounts at multiple FDIC-insured banks, each with less than $100,000.
Cover the Different Ownership Types
Also, keep in mind that it’s possible to have more than $100,000 covered at an FDIC-insured bank if you have multiple accounts with different ownership types. The FDIC separately insures accounts with different types of ownership at the same financial institution. The FDIC recognizes eight different ownership types, including single, joint, revocable trust, and irrevocable trust accounts to name just a few.
For trust accounts, the $100,000 of insurance protection applies for each beneficiary named on the account (not for each account owner). So if you had a trust account with three beneficiaries, it could be insured for up to $300,000.
The FDIC raised the insurance limit in 2006 for certain types of retirement accounts (including IRAs) from $100,000 up to $250,000. So by having accounts with different ownership types, it’s easy to see how it’s possible to have far more than the basic $100,000 in FDIC coverage at one financial institution if you ever were to need it.