Since the Great Recession began in 2007, there have been a lot changes to the standard FDIC insurance coverage program, including the creation of two new programs, the FDIC-sponsored program called the Transaction Account Guarantee Program and the U.S. Treasury sponsored program called the Temporary Guarantee Program for Money Market Accounts (no longer offered). These programs were enhanced or were created to help ensure the safety of deposit and money market mutual fund accounts for individuals and businesses. There has been a lot of confusion on how these programs work. Let’s look closer at the three main programs that are currently in place to help you protect your cash.
Standard FDIC Insurance Coverage:
On October 3, 2008, President George W. Bush signed the Emergency Economic Stabilization Act of 2008, which increased the FDIC coverage from $100,000 to $250,000. The new coverage limit of $250,000 was originally scheduled to expire on December 31, 2009, and then the coverage would revert to $100,000 limit. On November 9, 2010, Congress extended the $250,000 coverage permanently.
Most individuals are familiar with the standard FDIC insurance program. This program has been around since 1933, when the FDIC was created. No depositor has ever lost a penny of their FDIC-insured funds.
To determine if your depository institution participates in the FDIC insurance program, visit the FDIC’s website, or call your depository institution for verification. To determine if your funds are covered by the FDIC, you must address each account category at each depository institution separately. As such, you should review your account titling and account balances with each bank to determine if you have funds that are not covered by FDIC insurance. The account coverage categories are as follows:
Single Account owners are insured up to $250,000. These accounts include bank accounts titled in one individual’s name; accounts that are held for your benefit, such as agent, custodian, guardian, conservator, escrow accounts, sole proprietorship or “DBA” accounts, and estate accounts in the name of the decedent. If accounts in this category add up to more than $250,000 with a single bank, you have funds at risk.
Joint Account owners are insured up to $250,000 for each owner. Example, Jane and John Doe would be insured up to a maximum $500,000 ($250,000 per owner) for their total account values held jointly with a single bank. This is a separate account category; therefore, even if Jane Doe held $250,000 in a single account, she would still be covered for another $250,000 in her joint accounts. In order for each owner to qualify for full coverage under joint account rules, the account owners must be a person (i.e., no trusts, corporations, estates or partnership owners), and each owner must have equal rights to the funds.
Retirement Account owners are insured for $250,000, which is separate from the $250,000 they receive for Single Accounts and $250,000 for Joint Accounts. The $250,000 coverage limit for these type accounts will not revert to the $100,000 coverage limit on December 31, 2013. These accounts will remain at their current coverage levels. Retirement accounts include Traditional IRA, ROTH IRAs, SEP IRAs, SIMPLE IRAs, certain self-directed 401(k) plans, self-directed Keogh plans, and self-directed defined contribution money purchase plan or profit sharing plan.
Important: FDIC coverage does not pertain to stocks, bonds, annuities, life insurance, municipal bonds or U.S. Treasuries, even if these products were sold to you by your FDIC insured depository institution.
Corporation/Partnership/Unincorporated Association Accounts are also insured for $250,000. They are insured separately from any personal accounts the shareholder or partner may have with the same bank.
Revocable Trust Accounts are insured up to $250,000 for each named beneficiary. Insurance coverage eligibility and coverage amounts can get very tricky, when applied to revocable trusts. We recommend that you work with a knowledgeable financial planner or banker to understand your coverages for these accounts. Revocable Trust rules include informal account titling like “payable of death,” “in trust for,” and “as trustee for” accounts. Named beneficiaries must be a person, charity or other non-profit organization recognized by the IRS to eligible to be covered.
Irrevocable Trust Accounts have very complex FDIC insurance coverage rules. These rules could allow part of the account balance to be used against the grantor’s single account limit. You should seek the advice of a financial planner or banker to determine the maximum coverage for these type of accounts. You should also determine if these accounts are using any of your single insurance coverage limit.
Update
Effective December 31, 2010, the FDIC’s Transaction Account Guarantee Program (TAGP) has expired. On November 9, 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), which replaces the TAGP program starting January 1, 2011. The Dodd-Frank Act provides unlimited FDIC insurance coverage for all non-interest bearing transaction accounts through December 31, 2012. This coverage is available to all depositors, including consumers, business and government entities.
Unlike the TAGP, the Dodd-Frank Act excludes paying Negotiable Order of Withdrawal (NOW) accounts, Money Market deposit accounts (MMDAs) and Interest on Lawyer Trust Accounts (IOLTAs) from unlimited coverage. These accounts are covered under the standard FDIC insurance rules.
U.S. Treasury’s Temporary Guarantee Program for Money Market Funds:
Money Market Mutual Funds are no longer guaranteed, as this program expired September 19, 2009.
Bottom Line
Under the current programs, it is possible to have a large cash amount guaranteed. However, this is an ever-changing environment. If you have not reviewed your current account types, titles and balances, we strongly recommend that you seek the help of your financial planner or banker. It is important for you to know if your deposit and money market mutual funds are guaranteed under the current programs. You should also have a plan for your accounts when the current programs expire. If you have any questions or need more information, call Henssler Financial at (770) 429-9166.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
