Common Misconceptions about FDIC Insurance and the Real Facts

Misconception:

FDIC insurance coverage is based on the type of deposit you have. For example, a checking account is insured separately from a certificate of deposit (CD).

The Facts:

FDIC insurance coverage is based on how much money each depositor has in one of several "ownership categories" at each bank — single accounts, joint accounts, revocable trusts, and certain retirement accounts and so on — not on the deposit product itself.

Misconception:

Adding beneficiaries to Individual Retirement Accounts (traditional and Roth) and certain other retirement accounts can increase the FDIC insurance coverage.

The Facts:

The FDIC adds together all the retirement accounts that a person has at a bank in the insurance category called "Certain Retirement Accounts" and insures them up to $250,000, regardless of the number of beneficiaries designated to receive the retirement accounts upon the owner's death.

Misconception:

The more joint accounts you own, the more FDIC insurance coverage you can qualify for.

The Facts:

The FDIC looks at each person's share in all the joint accounts he or she owns at one institution and that total is insured up to $250,000, no matter how many joint accounts or co-owners there may be. The FDIC also assumes that all co-owners' shares are equal unless the deposit account records state otherwise.

Misconception:

You can increase the deposit insurance coverage of joint accounts at one bank by changing the order of the names or the Social Security numbers on the account.

The Facts:

Contrary to some beliefs, titling one joint account as belonging to “Joe and Mary” and another as “Mary and Joe” — or varying the Social Security numbers — will not increase the insurance coverage. The same goes for replacing “and” between their names with “or.”

Misconception:

The FDIC can take up to 99 years to pay insured deposits when a bank fails.

The Facts:

The truth is that federal law requires the FDIC to pay deposit insurance "as soon as possible." For insured deposits — those within the deposit insurance limits — the FDIC almost always pays insured depositors within a few business days of a closing, usually the next business day. Payment is made either by providing each depositor a new account at another insured institution or by issuing a check to each depositor. The limited exceptions that may take longer to process primarily are deposits that both exceed $250,000 and are linked to trust documents, and accounts established by a third-party broker on behalf of other individuals.