08.04.10
Seniors, Insurance, and Financial Security
American seniors who are financially savvy no longer keep their money in a sock under the mattress as in days gone by, but with a shaky economy, some may wonder if their hard-earned money’s still safe in the bank. My grandmother was one of those savvy seniors. She made it through the Great Depression without losing her shirt. Her advice rings in my ears now, “Divide up your assets in a variety of banks and investments, and make sure your bank is FDIC insured.“
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I believe my grandmother’s advice still rings true. Here are a few things senior citizens should know about FDIC insurance.
FDIC insured banks give their customers a guaranteed peace of mind that their hard-earned dollars will be safe in case of economic crisis that would cause the bank to fail. The FDIC has temporarily raised its maximum insured amount per depositor from $100,000 to $250,000 until January 1, 2014 when all account categories except IRAs and certain other retirement accounts will return to the previous maximum of $100,000.
This means that if you and your family has less than the maximum in all of your deposit accounts at the same FDIC insured bank, your money is fully insured. And if you have accounts in different insured banks, each bank insures those accounts up to the maximum. Meaning? Make sure your funds don’t exceed that maximum in any one bank. Divide your money into separately chartered banks, because each bank is separately insured. Your funds are fully insured by each bank up to the maximum even if the banks are affiliated (belong to the same parent company).
It’s possible that you may qualify for more than the maximum coverage (currently $250,000) at one insured bank if you have deposit accounts in different ownership categories. The most common consumer account categories are single ownership accounts, joint ownership accounts, self-directed retirement accounts (IRAs and Keogh accounts for which you choose how and where the money is deposited), and revocable trust accounts (the funds in this account pass to one or more named beneficiaries when the account owner dies). Deposits in different ownership categories are also separately insured. So rather than dividing funds among different banks, you could simply separate funds into different accounts that have separate ownership categories. So your single ownership account that exceeds the maximum coverage could be split off into another account or trust in the same bank that falls under a different ownership category. For example, you could funnel some of your funds into an IRA (Individual Retirement Account) or open a joint account with your spouse or another family member.
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A reduction of FDIC insurance coverage is possible in the case of a death or divorce in the family. This means that if two people own a joint account and one dies, the surviving owner might need to restructure his accounts so that he doesn’t exceed the maximum limit as the owner of two single ownership accounts within the same insured bank. The FDIC rules allow a 6-month grace period after a depositor’s death to give survivors or estate executives time to restructure accounts. But once the 6 months are over, you run the risk of having funds that are no longer insured by your bank. Also, check with your bank if you have a trust account, because for certain trust accounts, there is no grace period in the event of a beneficiary’s death or divorce.
Bank failures are fortunately fairly rare in this day and age, largely due to the strict financial strength and stability requirements for banking institutions to qualify as an FDIC insured institution. But in the rare instances of FDIC insured bank failure, no depositor has lost even a penny of FDIC-insured funds. If your bank did happen to go under, FDIC insurance would cover your deposit accounts completely including principal and accrued interest up to the maximum covered. If you did have deposits exceeding the maximum covered, you still might be able to recover some, or rarely, all of your uninsured funds. But this is usually a risk not worth taking.
In the unlikely event your bank does fail, the FDIC would issue payment promptly to you, the depositor, usually within a few days, and often by the next business day after your bank closes. Some competing insurance agencies have spread rumors that the FDIC doesn’t have adequate reserves to make payouts or that it takes years to make payments to insured depositors. This simply isn’t true. Recently the FDIC has increased its premiums for insured banks to ensure adequate reserves if there should be wide-spread bank failures.
Ultimately it is up to you to know what accounts and funds are insured by your bank, so ask! In economically unstable times, your best defense is to be aware and to make sure your hard-earned savings are protected.