A month ago, the sudden collapse of two regional US banks dominated the news, bringing with it some concerns and quite a few questions from our clients. These questions, which took many forms, all boiled down to two points: is my cash protected and should I be concerned about the future of banks?
In this post we hope to help shed some light on what’s insuring your bank accounts, how to ensure your funds are covered, and whether you should be worried about your bank accounts.
In the US, there are two primary insuring bodies for your cash accounts; the Federal Deposit Insurance Corporation (FDIC) and National Credit Union Administration (NCUA). These organizations, which cover banks and credit unions, respectively, have many similarities, including their coverage limits and how coverage is applied based on account registration.
Most of us are familiar with the $250,000 insurance limit and understand that this full amount is provided on our funds per bank or credit union. However, we find it far less common that people understand how account registrations factor into the insurance coverage provided.
Below are four common account registrations, each with their own coverage limit:
|$250,000 for each account owner
|$250,000 for each of the first five listed beneficiaries. 6 or more beneficiaries creates more complexity, but still affords some amount of insurance for each of them.
Let’s apply the table above to an example scenario:
Annie and Hal bank entirely at ABC bank. Annie and Hal each have individual accounts of $270,000 and $250,000, respectively. They also share a joint account together with $250,000 and Annie has a revocable trust with $1.25 million with her five boys listed as beneficiaries (tough break!). Would you believe it if I told you that $2 million of their $2.02 million is insured? The only uninsured funds are in Annie’s individual account above the $250,000 threshold.
As the example above illustrates, revocable trusts often come with significant insurance amounts. A useful “hack” to know is that individual accounts with payable on death (POD) designations, broadly referred to as beneficiaries, are treated as revocable trusts for FDIC and NCUA insurance purposes. While we don’t believe that your estate plan should be predicated on these insurance limits, naming individuals, charities, and/or non-profit organizations that you intend to receive your assets when you pass is a great way to gain more coverage easily.
So, the million dollar question (or $250,000 if you haven’t been reading carefully!) – Should you be worried? We don’t think so. The FDIC, which has been in existence since 1933, and the NCUA, created in 1970, have never failed to pay a claim on insured funds even with multiple banks failing each year. They are each backed by insurance deposit fund and have multiple levers they can pull to raise additional funds quickly if needed. However, please consult your advisory team at Woodward Financial Advisors should you have questions related to your specific situation.
Written by Alex Richani, CFP®
Image credit: iStock photo