Beating the FDIC Limits

Since the beginning of last year, close to 100 banks have been shuttered by the federal government, with the Federal Deposit Insurance Corporation assigned to pick up the pieces and see that bank customers get their money back. There’s a limit to how much a depositor can get back, however. From now until the end of 2013, the FDIC will insure bank deposits for up to $250,000 per depositor; after that, the limit reverts to $100,000.

If your assets add up to more than $250,000, there are ways to get around the FDIC limit. In a joint account, for example, each depositor is insured up to the limit, so you could park up to $500,000 in a joint account and be covered for the entire amount. Opening up accounts at several different banks can also bypass the coverage cap, since each separate account is insured up to $250,000. The process is tedious, however, and you’ll have to deal with multiple 1099s come tax time.

An easier way to stretch your FDIC coverage is an informal trust arrangement known as a “payable on death” or POD account. By adding beneficiaries to an account, you get $250,000 of coverage for each beneficiary named. Example: An account that names your two children as beneficiaries would be eligible for $500,000 of FDIC insurance. There are some caveats: Some beneficiaries, like nieces, nephews, and grandparents, don’t qualify. You also need to be careful in naming your beneficiaries because the terms of the POD account will bypass any instructions in your will, making it possible to inadvertently disinherit some heirs.

For more information on FDIC insurance, go to www.fdic.gov.