BWM: Classroom - Future of FDIC Coverage
[BWM] Why are you worried about FDIC protection to start with? The FDIC insures deposits in 7,246 banks and savings associations in the country as well as promotes their safety and soundness. When a bank fails, the agency reimburses customer deposits of up to $250,000 per account.
[BWM] So far to date, there have been 43 bank failures so far this year. In 2011, there were 92 failures; in 2010, 157 failures; in 2009, 140 failures. Read more: http://community.nasdaq. ··· 85y1OraT http://www.fdic.gov/bank ··· al/bank/
[BWM] I was prompted into this conversation today because of practical discussion at the bank. I wanted to cover this to provide a layman's view of banking accounts and what you COULD do with your money post RV. PLEASE AS ALWAYS SEEK PROFESSIONAL ADVICE TO SEE WHAT SOLUTIONS CAN BE PROVIDED FOR YOUR FAMILY AND UNIQUE CIRCUMSTANCES. THIS IS JUST SOME ANSWERS THAT MAY HELP SOME WITH GENERAL QUESTIONS ABOUT FDIC PROTECTION.
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[BWM] Had to run by my bank today to get something notarized and while I was waiting on the manager to finish up some things I asked her a couple of questions. First was "I had heard that FDIC protection would end for some accounts at the end of the year, is that true?" To which she replied, "some banks were not participating in the 'new' program but they had completed their process and would be continuing to provide FDIC protection going forward but not all banks would".
[BWM] The second was "previous discussions state that I get $250k protection per account holder, is that correct?" and she stated, "Yes, you get 250k each so for a joint account that would be a total of 500k". Well this got me thinking and curious so I decided to call the FDIC and discuss with them several of the issues that we have heard about in regards to account coverage and here are the basics from that conversation:
[BWM] First agent I spoke to was Carl. In regards to FDIC protection lapsing, the only coverage that will be eliminated is the unlimited coverage for non-interest bearing (0%) bank accounts which will expire on December 31st of this year (2012). The $250K per person* coverage will continue permanently per the Dodd/Frank Act going forward. (*per person will fall into different categories: single/joint/trust accounts each having limitations listed below)
[BWM] Single account-an account with one signer with sole access to account. Joint accounts-a multiple party account which ALL signers must have EQUAL access to the account. And Trusts-which may be created for the financial benefit of the person creating the trust, a surviving spouse or minor children, or a charitable purpose.
[BWM] I asked about Dodd-Frank accounts and such and he said specifically that the FDIC only covers accounts through approved institutions and did not seek specific accounts for coverage but rather was limited by the categories that are used to define an account (single/joint/trust).
[BWM] Now, the part that you need to understand is that the FDIC recognizes you per depositor, per institution, per category. This is important as you look for places to distribute your wealth. As I mentioned earlier, the MAIN categories for an individual (get to business later) are single, joint, and trust. Let's look at each one individually and you'll see something very important that will come into play.
[BWM] First, as we start doing the "math" with these I was working with a spreadsheet with myself, my wife and four children. I wanted to have a baseline so that when you are trying to work this up for yourself it would be practical and hopefully easy to understand.
[BWM] Ok, Single Accounts. I have a single account at the bank and per FDIC guidelines I have $250k protection on that account (*side note: what is the protection FOR? The FDIC insures your money up to $250k in the event of a bank FAILURE) NOW, this is where it gets interesting. After speaking with Carl, I was transferred to Ed to speak specifically about additional benefits of accounts.
[BWM] While the single accounts maintains a $250k protection limit, it allows for additional protection coverages for beneficiaries. THIS IS IMPORTANT. By naming beneficiaries to your single account you receive an additional $250k PER named beneficiary. So, in my worksheet let's see what this does.
[BWM] I have a personal Single account. Which offers me $250k protection but I name my wife and all 4 children as beneficiaries. This account now has 1.25M in FDIC Protection. Wait, you say, you have 6 ppl at supposedly 250k well here's the caveat. My wife has a single account also, and she has named me and the kids as beneficiaries on HER single account. The problem is that she cannot have more than $250k coverage in the SINGLE account category.
[BWM] So let's recap the single account category. I have an account with $1.25M FDIC protection with beneficiaries as my wife and 4 children. My wife has an account with $1.25M FDIC protection with beneficiaries as myself and 4 children.
[BWM] Now, we have a joint account. This is defined by the FDIC as an account where all parties have EQUAL access. So, we have $250k per person with equal access to the account and our account lists myself and my wife. So, we have $500k FDIC protection between the two of us. And the next caveat, we CANNOT list beneficiaries for joint accounts. So for this joint account the maximum FDIC protection would be capped at $500k (two individuals listed).
[BWM] Now the other options to look at that we discussed was irrevocable and revocable trusts (I don't want to get into trust's descriptions at this time, SEE YOUR PROFESSIONAL). Let's look at irrevocable first as their guidelines state for FDIC protection. Irrevocable was set at $250k with no flexibility as no beneficiaries can be assigned. They were against irrevocable from their protection standpoint due to the limitations and flexibility.
[BWM] Revocable Trust. Now, this got interesting when we broke this one down. In our case we listed myself and my wife as main account holders within the trust which receives $250k EACH as the primaries (NOT considered a joint account) for $500k total FDIC protection. But, we listed the 4 kids as the beneficiaries of the trust. This allows for $250K for each for another $1M of benefits which gives the trust a total of $1.5M of FDIC protection.
[BWM] So if you look at the total amount of benefits for a couple utilizing the situation listed each would gain $1.25M (single w/benes) times (2)[$2.5M], $500k (joint) and $1.5M (trust). This amount would not include any protection allocated by the FDIC for LLC's or partnerships. *note
[BWM] *discussions in regards to LLC's and business entities. If they uncover that you created a number of accounts merely for the purpose of protection they have the ability to combine the accounts and limit the protected amount. For example, let's say that you have 20 properties that you own and manage but you create a seperate account for every one OWNED by a different company. This is legal because it is different properties and locations. If you have one building and create a number of businesses within that location to "protect" your money you may have issues. The main thing they would look at is were you intentionally splitting businesses to increase protection amounts.
[BWM] Also, per Joyce at the FDIC there is not long term schedule for FDIC payouts. What I mean is there was speculation that the FDIC could take up to 99 years to payout if your bank failed. That is a miscommunication. The way the FDIC deals with this is as explained to me: a bank fails, all records of customers would be transmitted to the FDIC who would go through the accounts cutting checks for the TOTAL amount due to you which you should receive within a few days of the actual bank failure. The caveat here, another bank could take over the failed bank which would not make the FDIC liable (at that time) for any accounts as they now have a new responsible party prior to FDIC intervention.
[BWM] I'm not sure how much Q&A we can do but we'll try for anything that I may have missed mentioning. Remember, having tax and law professionals are vital in protecting your money in the changing world of financial regulations. GET HELP!
[Archer] So what are we to do after Dec 31, take our cash and put in safes?
[BWM] there is a place for a certain amount of that I believe in your plan.. you just need to look at the amount of money lost in interest vs. protection (or possible value gained) by having hard currency on hand
[dejoie] BWM, Wouldn't a TOD (Transfer on Death) be better to avoid probate rather than listing beneficiaries?
[BWM] the way it was explained to me from the FDIC was they would pay directly to the beneficiary in the event of a death and failure... with that, it SEEMS it would bypass some of that litigation (but again, see you tax attorney. The key is you are assigning DIRECTLY a beneficiary for payout)
[Scotzgirl] BWM really glad to hear there's no 99-year pay-back. Is there any length of time that could be used as "stall" in paying off accounts if no other bank takes over failed bank?
[BWM] the way Joyce explained it today was they were bound to pay out legally and didn't seem to have any qualms about doing it immediately... obviously depending on the realm of accounts inside the failure could affect things
[codreamer59] Could one set up a single, joint & trust account at more than 1 bank to obtain coverage for all of our money?
[BWM] GREAT QUESTION... AND YES... as I stated early in the text it's based on per account, per institution, per category... so you could repeat this process at a number of banks and still maintain your protection
say you have 5 single accounts at one bank. You will only have $250k protection for all 5 because you are the PRIMARY account holder
[stevhens777] BWM that 250,000 was per acct. Can you have unlimited accounts and be covered?
[BWM] sorry.. got that one jump started too quickly
[Archer] Do credit unions have FDIC ( I don't think so)? Do you know if their insurance will have the same limitations?
[BWM] unfortunately I have not spoken to any credit unions (we ain't got them around here you know) so I can't really speak to that sorry
[Truejoy] FDIC only covers a "failed" bank - what about a hacked bank and you end up with an empty account?
[BWM] the FDIC guarantees the bank... the individual bank is responsible for funds until such time they cannot support you
[tHoot] BWM Should have a follow up after looking at the insurance coverage on a Broker's account. Believe its 1 mil cash and up to 10 on investments. Now this could be a 10 mil cash sweep account.
[BWM] that's a completely different animal there... and has other things associated with it that may not be for everyone (especially if you don't want to have to "manage" your account much) again, see a professional and ask them about what your specific needs will be for what you want to do
[HeIsFaithful] BWM I'm single, so I can't do any of the two people with beneficiaries, unless I named my neices or nephews as beneficiaries...anyway wouldn't putting money in different institutions serve the same
[BWM] you can have a joint account with anyone.. but again you are liable to have both parties have EQUAL access to the account... the beneficiaries have NO legal control of the money other than the event of death and failure purpose?
[askew0619] Hello BWM I'm from Georgia Home of The Atlanta Falcons SuperBowl Bound just had to put that in 2 sec fame Ok Do you prefer Credit Union Banks or one of the big 4 Banks
[BWM] first of all you're way ahead of yourself LOL but we don't have credit unions around here.. it's something I will look into and while my original plan was to use a big 4 bank I have looked more recently at more regional banks after reconsidering the ratings
[mamari4] BWM great info. When I worked at a large intl investment firm we had a lot of people ask questions about protection against failure of those companies. Those companies are covered by SIPC and the firms had additional insurance coverage provided by an outside firm that they paid for.
[BWM] excellent point thanks... and again there are other insurance opportunities available to you... tonight we are covering WHAT YOU CAN GET FOR FREE... I realize that everyone doesn't have a bzillion dinar and need to plan for whatever they need to ... this is the purpose tonight
[codreamer59] With the recent # of bank failures over the past few years, where does the FDIC get the money to pay coverage to their depositors?
[BWM] that money bag has dwindled over the last few years... the banks pay into the FDIC like an insurance policy...
[hmoob76] BWM sorry if this question been ask already but we cash in with WF and than we can transfer and open up accounts at other banks ?
[BWM] ok cheater... this isn't about the FDIC but ok... you will be able to transfer to other institutions altho, depending on a perk package you may be required to keep a certain amount in that branch for a certain period of time
[tHoot] Also CDARS - Certificates of deposit can have a master accout, one statement, but spread over their affiliates. 250K max with each affiliate. There is also a similiar method for cash accounts. 250k X # of affiliates = a bunch of dough
[BWM] gone/going away...
[BWM] and every bank doesn't participate in the program
[Archer] Did you get that in writing and witnessed about the length of time it takes them to pay out if a bank fails? LOL
[BWM] thought about it.. but remember JOYCE told me
[BWM] they are pretty keen on giving those names out there...
[dornessa] If Frank Dodd accounts are ending Dec.31, do you think they will provide a replacement for it or do you think it will be extended?
[BWM] frank dodd doesn't end... it begins...
[BWM] the END is the non interest bearing unlimited protection accounts...
[BWM] frank dodd insures you will get 250k protection only
[ssak] So you could make your joint account for you, your wife & 4 kids for 1.5M insurance but you give up control to anyone named on the account. Would the joint acct with 6 ppl be another acct in addition the the joint with 2 ppl?
[BWM] I don't give up control on a regular account...the joint account CANNOT HAVE BENEFICIARIES
[Scotzgirl] BWM sorry for my confusion - are you saying that the beneficiaries only have protection if the named account holder has died AND the bank failed?
[BWM] YES.. they have no legal authority over the account
[BWM] basically you are naming them as POD's... Payable On Death
[mamari4] BWM This is great info because people are now empowered to ASK about the protection of their funds if ANY company goes under -- they can ask their bank, brokerage firm, credit union etc. Knowledge to ask the right questions is also power!
[BWM] absolutely... all we want is to arm you with the ammunition to make your own shots
[_waterworld] BWM ... any comment on Federally chartered thrifts..?
[BWM] sorry not in this conversation...
[cib] BWM - do you have any information/knowledge if ... rather than our U.S. banks , suppose our funds were invested with Charles Schwab or mutual funds companies; IYO are we at a greater risk ? Are we better with a bank because of 'benefits'? TYVM
[BWM] the problem with investment firms is you have limited control other than "how" you want to invest High Risk, medium risk, low risk... and you are basically an arm's length away from your money... in the end it's a comfort thing...
[Archer] Do you know if the LLoyds of London insurance is provided by all banks and is this a viable option, cost wise?
[BWM] some banks do... I did ask my bank today about loyds and they did not offer it except through their wealth management firm... it's not only what you ask... but who
[frydaddy] BWM missed some of the conversation about Credit Unions - do you feel good about them - same FDIC scrutiny?
[BWM] sorry.. but just haven't gathered enough to make an informed decision on those personally yet... but I'm looking
[BWM] THANKS AGAIN TO EVERYONE FOR YOUR ATTENTION AND PATIENCE... HOPEFULLY THERE WAS A LITTLE SOMETHING YOU COULD USE FROM TONIGHT'S CLASSROOM