Stableford Capital Insights

Options to Mitigate the Exposure to the FDIC Deposit Insurance Limit on Deposits

We have had several clients asking about FDIC Insurance as it pertains to their deposits outside of Stableford Capital. Currently, the FDIC insurance limit is $250,000 per depositor, per insured bank, for each account ownership category.The FDIC recognizes these ownership categories when protecting deposits:

Revocable Trust document
  • Individual
  • Joint
  • Certain retirement accounts (such as an IRA)
  • Revocable and irrevocable trust account
  • Employee benefit plan account
  • Corporation, partnership or unincorporated association account
  • Government account

Individual accounts are accounts owned by one person, with no named beneficiaries. So, for example, you may have a checking account and a savings account in your name only. Joint accounts have two or more owners but no named beneficiaries. You might have a joint checking or savings account with a spouse or an aging parent.Eligible retirement accounts and trust accounts can have one or more beneficiaries.FDIC insurance extends to all deposit accounts at insured banks. This includes:

  • Checking accounts
  • Savings accounts
  • Money market accounts
  • Certificates of deposit
  • Negotiable order of withdrawal (NOW) accounts
  • Official items issued by the bank (such as cashier’s checks or money orders)

The FDIC insures these accounts, both the principal and interest earned, up to the specified limits. The FDIC does not insure stocks, bonds, mutual funds, life insurance policies, annuities or municipal securities, even if you buy them at an FDIC-insured bank. Keep this in mind if you have those types of assets at a bank.

Before you can insure excess deposits, it’s important to know how much of your deposits are already protected by the $250,000 limit.

For example, say you maintain single ownership of a checking account and a savings account at the same bank. You have $25,000 in checking and $275,000 in savings. According to the FDIC insurance per account rules, $50,000 of your money would not be covered. In this example the checking and savings accounts are combined to total $300,000. Same depositor, same bank, one account ownership category, individual.How does this change if you’re married. You have the same checking and savings account, but you also share a joint savings account with your spouse with a $500,000 balance. Under FDIC insurance rules, you and your spouse would each have $250,000 in coverage, so the entire account would be protected. But $50,000 of the money in your single ownership accounts would still be unprotected. If you moved this $50,000 out of the individual account to another account owned by your spouse, it would now be covered. You can cover $1,000,000, all at the same bank this way. $250,000 in an individual account for both and $500,000 in a joint account.You can also spread cash to some of your beneficiaries, for example, children using revocable trusts in the beneficiaries’ name. $250,000 in each revocable trust account would be covered as a separate depositor.You can also use the FDIC’s Electronic Deposit Insurance Estimator, EDIE,  to calculate your insurance coverage based on ownership category and account balance.The FDIC insurance limit applies to your accounts automatically, so long as your bank is FDIC insured. There’s nothing special you need to do to qualify for it. But what if you have $1 million or more in your accounts? Are there banks that insure millions?

Here are some of the other best ways to insure excess deposits above the FDIC limits.

The simplest way to insure excess deposits above the $250,000 FDIC limit may be spreading money around to different banks. Let’s say you have $50,000 that’s not insured at your current bank. You could deposit it into a savings or money market account at another bank and it would be insured there.Another way to insure excess deposits above the FDIC limit is to use the Certificate of Deposit, CD, Account Registry Service, or CDARS. CDs can be useful for saving toward long-term goals or potentially earning a higher interest rate than you would with a savings account. If you use CDs as part of your savings strategy, it’s possible to use them to work around FDIC insurance limits through CDARS. CDARS, represents a network of banks that insure millions for CD savers. Here’s how it works. You sign a CDARS placement agreement and custodial agreement, then invest money with a CDARS network member. This money is then divided into CDs issued by different CDARS banks. So, theoretically, you could invest $5 million with CDARS and have it split into multiple CDs, each of which would be protected by the $250,000 FDIC insurance limit.

Credit union a way of mitigating exposure to FDIC Deposit Insurance Limits on Deposits

You can also move excess funds into a credit union. Credit Unions can offer a safe haven for excess bank deposits. While credit unions are not covered by FDIC insurance protections, they are still protected. The National Credit Union Administration, (NCUA) insures deposits up to $250,000 per depositor, per credit union, for each ownership category, similar to the FDIC. The NCUA was created by Congress in 1970 and is an independent federal agency.Lastly you can buy Treasury Bills with excess funds directly from the US Treasury through their Treasury Direct website. Treasury Bills can be purchased for terms ranging from four weeks to 52 weeks, for as little as $100 all the way up to $10,000,000. You can’t get much more secure that being backed by the full faith and credit of the United States Treasury. Stableford Capital can help you with this. Just contact Nikki Sutcliffe, our Director of Client Services, and she can guide you through the process.We here at Stableford Capital are ready to discuss any of these types of scenarios with you as part of our advisory services.After this week most everyone with cash in excess of the FDIC insurance limits is thinking about whether their money is safe in the bank they are using. Hopefully this will give you some options to consider if you want to diversify your exposure to having deposits concentrated in excess of the FDIC insurance limits.For more information about how Stableford can help protect and grow your financial legacy, call 480.493.2300 or contact us to schedule a complimentary 15-minute consultation.

Andrew Brinkman
Andrew J. Brinkman is the Founder of Stableford Capital. Over the course of his 45+ year career, he built A.J. Brinkman & Co., a leading foreign exchange arbitrageur and institutional floor broker, was a managing partner of Petros Capital, a long/ short institutional hedge fund and, for the past ten years, he has been a discretionary asset manager for high net-worth families. Andrew Brinkman has been a member of the Chicago Mercantile Exchange, the New York Futures Exchange, and the Chicago Board of Trade. A 1978 graduate of Cornell College with degrees in Economics and Political Science, he was a board member for ChildHelp USA, a board member of the Berry Center for Economics, and former trustee of Cornell College.