FDIC Insurance Coverage Overview
Reports of an increase in the number of banks on the Federal Deposit Insurance
Corporation’s problem bank list and recent bank failures have heightened awareness of FDIC insurance limits and eligibility rules. According to FDIC Chairman, Sheila Barr, most financial institutions are fundamentally sound and over 98% of the 8,500 banks and thrifts are well-capitalized. These banks account for 99% of total bank assets.∗ However, in the event of a bank failure, a client’s deposits are protected by the FDIC up to certain dollar thresholds.
The basic insurance coverage is $100,000 per depositor per insured institution, but individuals may qualify for more than $100,000 in coverage at an insured bank if they own deposit accounts in different "ownership categories," such as individual accounts, joint accounts, certain retirement accounts, and trust accounts.
It is a good idea for clients to periodically review their bank deposits to determine whether their cash is within the coverage limits. The rules related to FDIC insurance coverage are complex and it is important that clients review all of their cash deposits held at an individual bank. There are several categories of assets that clients should aggregate when analyzing the amount of coverage they have.
Cash in the Insured Cash Account (ICA)
Brokered CDs purchased through LPL Financial Brokered CDs purchased through other entities
Other bank deposits held directly by the client, such as checking and savings accounts
Banks in the ICA Program
The ICA leverages multiple banks in order to provide FDIC insurance coverage of up to $1,000,000 per individual account and up to $2,000,000 for joint accounts. Within an LPL Financial brokerage account, cash at an individual bank should not exceed $100,000 for an individual account or $200,000 for a joint account.
The client’s ICA cash could be deposited into10 or more banks within a single account. All the banks in which the client’s cash may be deposited are listed on the LPL Financial website at http://lplfinancial.lpl.com/x68.xml. Clients should review this list carefully to ensure that their cash is allocated in a way that best meets their needs.
The amount of cash on deposit at each bank will be listed on the client’s monthly statement. This information is also available on BranchNet in Account Browse. In addition, the client’s statement will list any brokered CDs the client holds. This allows the clients to determine, in aggregate, how much cash is held at a bank within their LPL Financial accounts. The client should also identify any other cash they may have on deposit at that bank outside of their accounts at LPL Financial.
If an ICA client has more than $100,000 in a single bank, ($200,000 for joint accounts) either in their LPL Financial accounts, in a brokered CD through LPL Financial, or in accounts outside of LPL Financial, the Financial Advisor may remove that bank from one or more ICA accounts by using the Insured Cash Account Bank Opt Out Form in the Service Express menu.
∗
LPL Financial may opt-out of a bank in the ICA program on the client’s behalf if a situation is identified in which the client’s cash exceeds $100,000 at a single bank. However, the client is responsible for monitoring the total amount of cash on deposit with each bank in order to determine the amount of deposit insurance coverage they have.
Bank Criteria for Inclusion in the ICA
Only banks in a well capitalized status as defined by the FDIC are allowed to be in the ICA program.
Each bank must certify every day that they are well capitalized.
If a bank becomes less than well capitalized, they can be removed from the program immediately.
General FDIC Coverage Limits
Following is a general overview of the FDIC Insurance coverage limits to help you and your clients determine the amount of coverage they have. However, please note:
The rules related to FDIC insurance coverage are complex and this information is intended only to provide general guidance. Clients should refer to the FDIC website if they have detailed questions about the extent to which their deposits are covered. The following URL is a link to a page called “Are My Deposits Insured” and has numerous resources for clients, including an FDIC coverage calculator.
http://www.fdic.gov/deposit/deposits/index.html
The FDIC generally insures individual depositors, per ownership category, up to $100,000 per bank. Owners of certain Retirement Accounts are insured up to $250,000 per bank.
Common FDIC Ownership Categories and Coverage Limits
Single Accounts The individual depositor is insured up to $100,000. All funds in an individual’s single accounts are
combined to determine the amount of coverage. Certain Retirement
Accounts
These are deposits owned by one person and titled in the name of that person’s retirement account.
All types of IRAs qualify, plus Section 457 deferred compensation plans, self-directed defined contribution plan accounts and self-directed Keogh plan accounts. All eligible retirement accounts listed above owned by
the same person are added together and the total is insured up to $250,000.
Joint Accounts Joint accounts are deposits held in the names of two or more persons.
Each co-owner is assumed to own an equal share of the account.
Each co-owner is insured up to $100,000.
All funds in an individual’s joint accounts are combined to determine the amount of coverage.
Revocable Trust Accounts
Each owner and “qualified” individual beneficiary is covered up to $100,000.
The account title must include commonly accepted terms such as "payable on death," "in trust for," "as trustee for" or similar language to indicate the
testamentary nature of the account. These terms may be abbreviated as "POD," "ITF" or "ATF."
Coverage Examples
Single Account Example 1 – ABC Bank
Account Title Account Type Account
Balance
Mary Smith LPL Financial Brokerage Account - ICA $ 25,000 Mary Smith LPL Financial SAM Account - ICA 10,000 Mary Smith LPL Financial Brokered CD 50,000
Mary Smith Checking Account 5,000
Total Deposits $ 90,000
Amount Insured $90,000
Single Account Example 2 – ABC Bank
Account Title Account Type Account
Balance
Mary Smith LPL Financial Brokerage Account - ICA $ 25,000 Mary Smith LPL Financial SAM Account - ICA 25,000 Mary Smith LPL Financial Brokered CD 75,000
Mary Smith Checking Account 10,000
Total Deposits $ 135,000
Amount Insured $100,000
Amount Uninsured $35,000
Joint Account Example 1 – ABC Bank
Account Title Account Type Account
Balance
Mary and John Smith LPL Financial Brokerage Account - ICA $ 25,000 John or Mary Smith Brokered CD with another firm 50,000 Mary or John or Robert Smith CD Direct with SunTrust Bank 120,000
Total Deposits $ 195,000
Insurance coverage for each owner is calculated as follows:
Depositors Ownership Share Amount Insured Amount Uninsured Mary $ 77,500 $ 77,500 $ 0 John 77,500 77,500 $0 Robert 40,000 40,000 $0 Total $ 195,000 $ 195,000 $ 0
Joint Account Example 2 – ABC Bank
Account Title Account Type Account
Balance
Mary and John Smith LPL Financial Brokerage Account - ICA $ 25,000 John or Mary Smith Brokered CD with another firm 150,000 Mary or John or Robert Smith CD Direct with SunTrust Bank 150,000
Total Deposits $ 325,000
Insurance coverage for each owner is calculated as follows:
Tips to Maximize FDIC Insurance Coverage
The FDIC generally insures individual depositors up to $100,000 per bank per ownership category ($250,000 for certain retirement accounts). By utilizing separate ownership categories, clients can maximize the amount of insurance coverage they have at any one bank. Following are some examples of depositors with more than $100,000 worth of coverage in a single bank.
Example 1: Mary Smith
Account Ownership Balance Mary’s Insured
Balance
Mary Smith (Individual Account) $100,000 $100,000 Mary Smith and Robert Smith
(Joint Account - Each owns half)
$100,000 $50,000
Mary Smith and Jane Smith (Joint Account - Each owns half)
$100,000 $50,000
Mary Smith and Jim Smith (Joint Account -Each owns half)
$100,000 $0
Mary Smith IRA $250,000 $250,000
Mary Smith In Trust For Jane Smith and Jim Smith (Revocable Trust
$200,000 $200,000
Total Insured for Mary Smith $650,000
Example 2: John and Jane Parker
Account Ownership Balance John’s
Insured Balance
Jane’s Insured Balance
John Parker (Individual Account) $100,000 $100,000 $0
Jane Parker (Individual Account) $100,000 $0 $100,000
John and Jane Parker
(Joint Account - Each owns half)
$100,000 $50,000 $50,000
Jane Parker IRA $250,000 $0 $250,000
John Parker IRA $250,000 $250,000 $0
John and Jane Parker In Trust For Nell Parker and Bill Parker (Revocable Trust)
$400,000 $200,000 $200,000
