What is an Insured Account?

When you walk into almost every bank, you will see a sign or sticker on the door stating that the institution is FDIC insured. But what exactly does this mean, and what is covered by an FDIC institution?

Bank accounts have been insured by the Federal Deposit Insurance Corporation (FDIC) for about 50 years. Savings accounts were previously protected by the Federal Savings Loan Insurance Corporation (FSLIC), but after the S&L failures of the early 1980s, the FSLIC was folded into the FDIC.

What is insured?
All types of deposits received by a financial institution in its usual course of business are insured. This includes:

• savings deposits
• checking deposits
• certificates of deposit (CDs)
• items for which the insured depository institution is liable when issued in exchange for money or its equivalent, or for a charge against a deposit account such as
  • certified checks
  • letters of credit
  • travelers checks

What is not insured?
FDIC does not protect a person holding

• common stock,
• preferred stock,
• bonds
• debentures issued by an institution.
• deposits which are only payable overseas and not in the USA
• securities, mutual funds, annuities and similar types of investments
• treasury securities purchased by an institution on a customer’s behalf or held for safekeeping

FDIC also does not insure creditors other than depositors and shareholders of a failed bank or savings association.

How does the coverage work?
Your deposits are safe only up to prescribed limits. Each depositor’s funds are insured up to $100,000. That limitation applies to the total of a person’s funds in checking accounts, savings accounts, and CDs. for which an insured bank is liable. Therefore, a certificate of deposit consumer does NOT obtain additional deposit insurance by putting $100,000 into a savings account at the same bank. In that case, only $100,000 is insured, not $200,000.

Actual title to each insured account must be in the name of the account holder named. So, if a depositor sets up a number of accounts under different names with no intention of creating the indicated ownership interests with respect to the funds, deposit insurance will not be increased. The funds will be insured only as the funds of the true owner.

How do joint accounts work?
A husband and wife, or any two or more persons, may have a valid joint account, separately insured up to $100,000, in addition to their individual accounts in the same insured bank. An individual may be co-owner of several insured accounts, each held jointly with a different individual, but all joint accounts held by the same combination of individuals are insured only to $100,000.

The total of separate insurance for an individual with an interest in several joint accounts is also limited to $100,000. Since each co-owner is deemed to have an equal interest, the interest in a $100,000 account held jointly with one other person is half, or $50,000. In such a case, one can therefore be co-owner only of two fully insured $100,000 accounts, each held jointly with a different individual.

Insurance protection is not increased by merely rearranging the names of owners, changing the style of names, or having more than one joint account for the same combination of owners in the same insured bank. Each co-owner of a joint account must have equal withdrawal rights and must personally execute a signature card, except in the case of jointly held certificates of deposit or deposits represented by negotiable instruments. Jointly held certificates must be jointly owned in order to be insured as a joint account.

What happens with accounts held for others?
Funds deposited into revocable trust accounts whose beneficiaries are either a spouse, child, or grandchild of the owner are separately insured to $100,000 in addition to the insurance on valid individual and joint accounts. These types of accounts provide that at the death of the owner, funds will pass to a named beneficiary, i.e., spouse, child or grandchild. The person who has the power of revoking the trust is considered the owner of the account.