- The collapse of Silicon Valley Bank and Signature Bank continues to prompt a review of FDIC coverage limits, which are generally $250,000 per depositor.
- On Friday, President Joe Biden said the FDIC could guarantee deposits in excess of $250,000 should further instability emerge.
- However, experts say it is possible to better insure your deposits yourself.
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When it comes to bank deposits, $250,000 is the key number pundits are talking about given the recent financial shocks in the banking sector, not seen since the financial crisis.
This amount is the threshold that bank depositors should consider when considering whether or not their money is insured by the Federal Deposit Insurance Corporation (FDIC). Coverage limits are per depositor, per ownership category and per bank.
Deposits below this amount are covered, while funds above this threshold may not be insured if unforeseen circumstances occur at a financial institution.
But the government recently made an exception for people who deposited more than $250,000 with Silicon Valley Bank and Signature Bank.
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On Friday, President Joe Biden said the FDIC could again guarantee deposits above $250,000 should there be further instability.
The $250,000 threshold was set by Congress in 2010. Some experts say this is not enough and should be raised.
Congress may temporarily suspend the limit. However, Treasury Secretary Janet Yellen said that uninsured deposits should only be covered where “a failure to protect uninsured depositors would result in systemic risk and significant economic and financial consequences”.
In general, most consumers don’t need to worry about their deposits.
“If you have less than $250,000 in a bank account, that’s not a problem for you — you’re fully insured,” said Jill Castilla, president and CEO of Citizens Bank of Edmond, a community bank in Edmond, Oklahoma.
“It’s only when you start seeing those limitations that you may be exposed to something,” Castilla added.
Experts say there are still ways to get FDIC coverage even if you exceed the $250,000 limit.
FDIC insurance generally covers $250,000 per depositor, per FDIC-insured bank, and property category. However, certain financial institutions can circumvent these limits by working with other financial institutions to guarantee higher deposit levels.
Citizens Bank of Edmond offers additional coverage through the IntraFi network with a limit of $150 million per depositor.
“If you can use IntraFi, you don’t necessarily have to go to another bank to get another $250,000,” Castilla said.
If you have less than $250,000 in a bank account, it doesn’t matter to you – you’re fully insured.
Jill Castilla
CEO of Citizens Bank of Edmond
Because the bank’s average deposit is typically $25,000, Citizens Bank of Edmond doesn’t use the extended coverage often, Castilla said.
To sign up, customers must sign an agreement allowing the bank to use IntraFi to back their deposits.
Customers can also review the list of banks on the IntraFi network and exclude those they don’t want to deposit with, Castilla said.
Those who sign up with IntraFi can choose from a variety of products with either variable or fixed interest rates, provided through money market funds or certificates of deposit, Castilla noted.
From the depositor’s perspective, the process should be simple.
“The banker should have these conversations with them if they have uninsured deposits,” Castilla said.
Notably, there are ways to get coverage for deposits in excess of $250,000, including the Depositors Insurance Fund, which is privately sponsored by the industry. Some states also provide backstops for FDIC insurance, Castilla noted.
Other types of accounts may offer different protections, such as the National Credit Union Administration for credit union deposits or Securities Investor Protection Corporation for brokerage accounts.
To be safe, it’s best to read the fine print to fully understand your coverage limits.
Another way to get more than $250,000 in coverage for your deposits is to add beneficiaries.
For example, if you have $1 million in deposits, only $250,000 would be covered alone, Castilla said, leaving $750,000 uninsured.
But if you add four beneficiaries — a spouse and three children — that provides another $750,000 of coverage, or $250,000 per person, as long as those beneficiaries have no other deposits with the bank, Castilla said.
Before using this strategy, you should carefully consider how it fits into your estate plan.
Under FDIC rules, deposits held by an individual with no beneficiaries are considered individual accounts. However, once the individual account holder designates a beneficiary or beneficiaries, the account can be insured as a revocable escrow account provided it meets certain requirements.
Remember, beneficiaries always take precedence over a will, noted Carolyn McClanahan, a certified financial planner and founder of Life Planning Partners in Jacksonville, Fla.
“If you have a beneficiary account, those assets will not go through your will,” McClanahan said.
If you designate your children as beneficiaries but they are under 18, a guardian must take control of the money until they are adults, McClanahan noted. That can make it more expensive for them to collect the money, she said.
Alternatively, you can set up a trust and state in your will that the money should be held there until your children come of age. Then you would name the trust instead of your children on your bank beneficiary forms.