Consumer Law

Co-Owned FDIC Insured Accounts

Whether you are setting up an account with your spouse, partner, parent or child, you will definitely want to make sure those co-owned accounts are insured. The Federal Deposit Insurance Corporation (FDIC) protects depositors against the loss of their insured deposits if an FDIC-insured bank or savings association fails. FDIC insurance is backed by the full faith and credit of the United States government. If your bank offers insured accounts, you will see official "FDIC Insured" signs on display at each teller window or station where deposits are regularly received.

As of October 3, 2008, the FDIC deposit insurance limit was temporarily increased from $100,000 to $250,000 per depositor through December 31, 2009. If a depositor's accounts at one FDIC-insured bank or savings association totals $250,000 or less, the deposits are fully insured. However, it is possible to have more than $250,000 deposited at an insured bank and still be fully insured if the accounts are in different ownership categories.

Combining Funds

You can combine your deposits with another person and each of you will be insured for up to $250,000. If you want to increase your insurance coverage, you can divide your deposits into several different combined accounts at the same bank as long as the accounts are in different ownership categories. In that case, each person's funds in each ownership category will be insured up to $250,000.

Ownership categories include:

  • Joint Accounts
  • Revocable Trust Accounts
  • Irrevocable Trust Accounts

Joint Accounts

A joint account is a deposit owned by two or more people. Checking, savings, money market, certificate of deposit and no-frills accounts can be set up as joint accounts. Each person's funds are insured up to $250,000 but since joint accounts are just one ownership category all joint accounts combined are covered up to $250,000 for each owner. For example, if you and a co-owner have $500,000 in a checking account and $500,000 in a money market account, you are each insured for only $250,000 in your joint accounts for a total of $500,000. Therefore, $500,000 of your funds would be uninsured. Make sure you set up additional accounts at another FDIC-insured bank or savings association or under a different ownership category if you have joint accounts that are over $500,000 in one institution.

Revocable Trust Account

A revocable trust account is a deposit owned by one or more people which directs that upon the death of the owner or owners, the money in the account will be paid to named beneficiaries (people that will receive the money in the account). A revocable trust account can be terminated or closed by the owners at any time.

There are two types of revocable trust accounts, which are informal and formal revocable trusts. Informal revocable trusts are also called payable-on-death (POD), Totten trust or in trust for (ITF) accounts. Informal revocable trusts are created when the account owner or owners sign an agreement stating that the deposits are payable to one or more beneficiaries upon the owner's death.

Formal revocable trusts are also called living or family trusts. These are usually set up by an attorney with the owner or owners specifying who will receive the trust assets when an owner dies. The owner or owners control the deposits and other assets in the trust while they are alive, and they can change the trust at any time. The trust becomes irrevocable and cannot be changed when an owner dies.

All deposits that an owner has in both informal and formal revocable trusts are added together for insurance purposes, and the insurance limit is applied to the combined total. Revocable trust accounts are insured up to $100,000 per owner for each named beneficiary. For example, a mother and father have a POD account with a $1,000,000 balance, and their two children are named the beneficiaries. The full $1,000,000 is insured because each owner of a revocable trust has insurance coverage up to $250,000 for each beneficiary.

Irrevocable Trust Account

Irrevocable trust accounts are deposits held by a trust in which the creator of the trust contributes money or other property and gives up all power to cancel or change the trust. The interests of a beneficiary in all deposit accounts established by the same person and held at the same insured bank under an irrevocable trust are added together and insured up to $250,000. If you and a co-owner set up an irrevocable trust account then the interests of a beneficiary under your irrevocable trusts would be insured up to $500,000.

Questions for Your Attorney

Determining coverage can be quite complicated, and if you have legal questions about co-owned FDIC insured accounts, you may want to contact a consumer banking attorney. Below are some questions that you may want to ask your attorney:

  • Can I increase my insurance coverage by placing deposits with different insured banks?
  • Can I increase insurance coverage for my joint accounts by using a different co-owner's Social Security number on each account or changing the way the owners' names are listed on the accounts?
  • Should I set up a revocable and an irrevocable trust account?
  • How do I plan for what will happen when the temporary increase in coverage expires?
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