A primer on FDIC deposit insurance

Confused about FDIC insurance? You're not the only one, and have about 300 million other residents of the U.S. in equal company. I think that this country seriously needs to consider adding a Consumer Finance course to all high school curricula, because it seems that most banks have done a really poor job of educating people about FDIC insurance and it limits.

Here's a good primer from a MarketWatch.com article:

If you are sitting on deposits of over $100,000 at any bank, you are at risk.

Do you have too much money in the bank? Don't panic. You don't need to start running around, shopping for a dozen banks to hold your money. At least, not yet.

First, find out if your bank carries additional insurance. The great news for folks in Massachusetts is that all state chartered banks are required to carry additional coverage through the Depositors Insurance Fund. DIF covers all deposits over the FDIC limits, so depositors don't have to do a thing. See this page for more information.

That's great for Massachusetts residents. What about the rest of us?

It turns out there is no national insurance program for all banks. However, there is an interesting alternative. It's called the Certificate of Deposit Account Registry Service, or CDARS. See this page for more information.

If your bank participates in the program, you can have up to $50 million dollars in Certificates of Deposit and still have full FDIC coverage for your funds.

How does it work? You deposit money into CDs at your bank. Your bank spreads the CDs out among enough other banks to ensure that the part of your money in each bank is under the FDIC limits. In other words, you get the benefit of having 5, 10, or even 50 bank accounts with less than $100,000 in each account -- without the headache of opening, tracking and managing all those accounts yourself.

All you have to do is sign a document agreeing to allow the bank to spread your money around. CDARS says there are no additional fees to you. And you only get the one bank statement.

Without sitting on endless hold with your bank, how can you find out whether it participates in CDARS? Just go online and see. You can look up your institution, and if they aren't listed, you can find one near you that is a participant. See this CDARS page.

Before you move your money, have a friendly chat with your banker and urge them to join the program. If they're too busy to bother, then it's time to move your money to get full protection.

Now's the time to understand what part of your money is protected and what part isn't. Banks protected by the Federal Deposit Insurance Corporation insure accounts as follows -- you can have a separate account in each category:

• $100,000 for a single depositor (owned by one person, in the name of one person).
• $200,000 for a joint account (owned by two people, in the name of both people).
• $250,000 retirement accounts, including traditional and Roth IRAs, SEP IRAs, SIMPLE IRAs, Section 457 deferred compensation plan accounts (self-directed or not), self-directed defined-contribution plan accounts, self-directed Keogh plan (or H.R. 10 plan) accounts. See this FDIC page for more information.

The FDIC also insures revocable trust accounts, insuring the interests of each beneficiary up to $100,000 for each owner if all of the following requirements are met:

• The beneficiary is the owner's spouse, child, grandchild, parent, or sibling. Adopted and stepchildren, grandchildren, parents, and siblings also qualify. In-laws, grandparents, great-grandchildren, cousins, nieces and nephews, friends, organizations (including charities), and trusts do not qualify.
• The account title must indicate the existence of the trust relationship by including a term such as payable on death, in trust for, trust, living trust, family trust, or an acronym such as POD or ITF.
• For POD accounts, each beneficiary must be identified by name in the bank's account records.