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Money Girl
092 MG Extra! Extra! The New FDIC Scoop
Building a portfolio with Fidelity Basket Profolios is kinda like making a sandwich. It's as simple as picking your stocks and ETFs, sort of like your meats and other topics. And managing it as one big, juicy investment. That's pretty good. Learn more at Fidelity.com/baskets. Investing involves risks including risk of loss. Fidelity Workers Services, LLC. Member NYSC SIPC. With the five dollar meal deal at McDonald's, you pick a McDouble or a McChicken, then get a small fry, a small drink, and a four-piece McNuggets. That's a lot of McDonald's for not a lot of money. Price and participation may vary for a limited time only. Hello and welcome to Money Girls' Quaking Dirty Tips for our richer life. I'm your host, Laura Adams. This is a special extra episode to make sure you have the most up-to-date information about recent changes to FDIC insurance. From the many emails I've received from listeners about the FDIC, I know this is a topic that really hits home right now. Like this email from Patrick, "Hi, Laura. I have one question regarding holding more than $250,000 in a single SEP IRA account. First, I fully understand the money is not FDIC-insured if it is in stocks, etc. However, if I allocate it to different FDIC-insured CDs at different institutions, would it then all be insured? For example, if I had a $100,000 FDIC-insured CD at Bank A and a second $100,000 FDIC-insured CD at Bank B and a third $100,000 FDIC-insured CD at Bank C, would they all be fully insured, even if all three banks failed? Thank you in advance for your expertise." Well, thanks for the question, Patrick, and have no fear Money Girl is at your service to help you know if you need to take quick action to protect your funds. The good news is that as of October 3, new legislation in the Emergency Economic Stabilization Act of 2008 increase the basic deposit insurance limits. But this is a temporary measure that's just in place until December 31, 2009. Here's a quick overview to which Patrick alluded. FDIC insurance only applies to deposits such as checking accounts, savings, money market deposit accounts, and certificates of deposit or CDs. It does not ensure any type of financial product such as mutual funds, stocks, bonds or insurance. First, I want to make sure you understand the following two important points about coverage. Number one, you receive separate coverage for deposits held at different FDIC-insured institutions. And number two, at each institution, you receive separate coverage for deposits that fall under different types of account ownership categories. The most common ownership categories for individual depositors are single accounts, joint accounts, trust accounts, and retirement accounts. You can have all these different types of accounts open at one FDIC-insured bank and still get full coverage for each account category. It doesn't matter whether it's a checking account, savings, or CD. What matters is how the account is owned. The coverage limits apply to the total of all deposits per deposit or per account category. Let's go through each of the most common account types. I'll give you the updated insurance limits and an example for each one. Single accounts are those that are held in the name of one person. The coverage used to be 100,000 but has been raised to $250,000. Consider this example. If you have a checking account with 75,000 and a CD worth 200,000 and they are both single accounts at the same institution, you have $25,000 that's unprotected. This is because your total insurance limit for single accounts at any given FDIC institution is $250,000. Since your single ownership accounts total $275,000, the best way to protect your money would be to transfer the excess $25,000 to a new account at a different FDIC-insured bank. Joint accounts are those held in ownership by two or more people. So if you and a spouse have both your names on a savings account or CD, for example, you each have $250,000 in total joint account coverage per FDIC-insured institution. So as a couple, you have half a million dollars in coverage at that bank. September is a great month for planning. We start thinking about the rest of the year, whether it's back to school, big year-end work projects, holiday plans or travel. Planning ahead is crucial in life, especially when it comes to what happens when you're gone. Getting life insurance may sound daunting, but policy genius makes the process a breeze. With policy genius, you can find insurance policies that start at just $292 a year for a million dollars of coverage. Some options offer same-day approval and avoid unnecessary medical exams. Policy Geniuses technology lets you compare quotes from America's top insurers in just a few clicks to find your lowest price. It's the country's leading online insurance marketplace. And if you ever need help or guidance, they have an expert license support team to answer your questions, handle all the paperwork and advocate for you throughout the process. It's never too late to plan ahead. Go to policygenius.com or click the link in the description to get your free life insurance quotes and see how much you can save. That's policygenius.com. The 5 dollar meal deal at McDonald's means you get to pick between a mug double or a mug chicken. Then get a small fry, a small drink and a four-piece mug nuggets. That's a lot of McDonald's for not a lot of money. Get the 5 dollar meal deal today. Prices and participation may vary for a limited time only. My dad works in B2B marketing. He came by my school for career day and said he was a big row as man. Then he told everyone how much he loved calculating his return on ad spend. My friends still laugh at me to this day. Not everyone gets B2B, but with LinkedIn, you'll be able to reach people who do. Get a $100 credit on your next ad campaign. Go to LinkedIn.com/results to claim your credit. That's LinkedIn.com/results. Terms and conditions apply. LinkedIn, the place to be, to be. Trust accounts are a little more complicated and there are two separate categories that each qualify for full insurance. These are revocable trusts and irrevocable trusts. I'm only going to discuss the informal, revocable trust because it's the most common type for individuals. It's also known as a POD or Payable On Death account. These aren't deposits owned by one or more people who intend to give the money to one or more named beneficiaries upon their death. The FDIC just simplified the rules for revocable trusts at the end of September, which is another reason why I wanted to get this update show to you. Beneficiaries used to be restricted to close family members, but now a POD beneficiary can be any person, charity or IRS approved nonprofit organization. All deposits in informal or formal, revocable trust accounts are added together and have insurance of $250,000 per owner per beneficiary up to $1.25 million. An example of a trust would be a mother who wants to leave a CD to her son and to her best friend, split 50/50 between them upon her death. If she sent the CD up as a POD account, she is insured up to $250,000 for each beneficiary or for $500,000 in this example. Remember that the coverage for each trust owner is calculated by multiplying 250,000 times the number of beneficiaries. It's an error to count the number of owners plus the number of beneficiaries times 250,000. There has been no change to the coverage for retirement accounts. It was 250,000 per owner and remains at 250,000. Now let's go back to Patrick's question. He said he has more than 250,000 in his IRA and wants to know if spreading it around to different FDIC-insured banks would keep him covered. Yes, that's the perfect strategy to protect the money, but now Patrick won't have to spread it around to quite as many different institutions. Let's say he has 300,000 in his IRA. He could move 50,000 to a retirement account at a different FDIC-insured bank. He's insured for a total of 250,000 in retirement accounts per institution. So if both his banks fail, he's still sitting pretty for retirement. If all these numbers have left you spinning and you need further clarification, I recommend you visit MyFDICinsurance.gov. This new FDIC site has an insurance estimator that makes it easy to understand if you've exceeded your coverage for personal or business deposits. I'm glad you're listening. Keep the great emails coming to money at quickanddirtytips.com. You can find a transcript of this episode, as well as all the other great Quick and Dirty Tips podcasts at quickanddirtytips.com. Cha-ching! That's all for now. Courtesy of Money Girl, your guide to a richer life. 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