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Money Girl
086 MG It's the FDIC, I See
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Many of the listener emails and voicemails I've received lately have been about FDIC insurance. I see this as a popular topic, so I'll answer a few specific questions about FDIC coverage in this episode. Now, let's get to the great listener questions I received. Ken writes in, "Federal law requires the FDIC to make payments to depositors as quickly as possible after a bank fails. Is there a defined timetable? How long is the FDIC legally allowed before making payment during a widespread series of bank failures?" Ken, thanks for the question. The FDIC policy regarding the time for payment of insurance claims is, quote, "as soon as possible," end quote, with no specific timeframe or payment deadline. But let's consider how payments from the FDIC have been handled in the recent past. Historically, the FDIC has made payment on insured funds within a few days. They typically make arrangements for a bank in good standing to open a new account for each recipient of insured deposits and send their money on the next business day. In the event that the FDIC cannot send funds to a healthy institution, they issue checks directly to depositors. They indicate that this payable process can take up to three business days. And with certain types of accounts, such as living trusts or those open by brokers, the FDIC may need more time to finalize the insurance payment, but they say that this process usually wouldn't take more than one to two weeks. There is a misconception that the FDIC could take up to 99 years to pay depositors. In their top 10 misconceptions list, the FDIC website states that this is completely false. Here's a quote from an FDIC claims manager. "The FDIC staff does whatever it takes, often working long into the night or the weekend, reviewing thousands of account balances and determining the insurance coverage for each depositor, and that is essential to maintaining consumer confidence in banks, which keeps local economies running smoothly, especially in small communities." I'll include a link in the show notes to this FDIC consumer information. A listener named Nancy writes in, "I went to add a beneficiary to my CD account to increase the FDIC insurance to 200,000. I was told a husband, wife, mother, father, child, sister, or brother are the only FDIC recognized beneficiaries." Is that true? Thanks for the question, Nancy. The answer depends on the ownership type of your account. If you intend to own it as a joint account with the beneficiary, they become a co-owner and are not required to be related to you. However, if you intend to own the CD as a revocable trust, also called a Payable on Death or POD account, the beneficiary requirement is different. All beneficiaries of Payable on Death accounts must be related to the account owner as either a spouse, child, grandchild, parent, or sibling. Revocable trust accounts are insured up to 100,000 per owner for each beneficiary. 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. 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Terms and conditions apply. Linkedin, the place to be, to be. Imagine earning a degree that prepares you with real skills for the real world. Capella University's programs teach skills relevant to your career so you can apply what you learn right away. Learn how Capella can make a difference in your life at capella.edu. Deborah wrote in with another question related to account ownership. She asks, "How about a savings account that's in trust for my daughter? Would that also be insured for 100,000, separate from the insurance for my personal account for 100,000?" I appreciate the question, Deborah. Yes, if the account for your daughter is set up as a revocable or irrevocable trust account, it has separate insurance coverage from a single or joint account. Any deposits maintained in different categories of legal ownership are separately insured even if held at the same bank. There are eight ownership categories recognized by the FDIC. The first seven qualify for the 100,000 insurance amount. Number one, single accounts. Two, joint accounts. Three, revocable trust accounts. Four, irrevocable trust accounts. Five, employee benefit plan accounts. Six, government accounts. Seven, corporation, partnership, unincorporated association accounts. And number eight, self-directed retirement accounts. These have an insured total of 250,000. I received a voicemail from a listener named Rick who was adversely affected by the failure of IndyMac Bank last month on July 11. Here's a portion of his message. Yes, we had two money market accounts with IndyMac Bank before it failed. They were under two different taxpayer identification numbers. The first was a corporation sub-chapter S corporation. The second was a LLC company. The way we see it is two different corporations, two different companies. So therefore, it should not be pulled together. I'm just wondering if you could state some code that we could look at and possibly try to understand that. Both of Rick's account names reference the same company and therefore may have been regarded as belonging to one FDIC ownership category. The corporation account type that I mentioned includes both sub-chapter S and limited liability companies. So even though they're separate entities under the eyes of the law, the FDIC doesn't insure them separately unless they can prove engagement and quote, "independent activity." This means that if a corporation, partnership, or unincorporated association is not engaged in independent activity, for insurance purposes, the FDIC will only cover a total of 100,000 in deposits. Rick, thanks for your message and I'm sorry for your financial loss. I'll put a link in the show notes to the FDIC corporation regulation. Cha-ching. That's all for now. Courtesy of Money Girl, your guide to a richer life. Send email to money@quickanddirtytips.com or call into the Money Girl voicemail at 1-877-6 richer. You might just make it on the show. I'm glad you're listening and look forward to reading more of your comments and questions. Imagine earning a degree that prepares you with real skills for the real world. Capella University's programs teach skills relevant to your career so you can apply what you learn right away. Learn how Capella can make a difference in your life at Capella.edu. When you need meal time inspiration, it's worth shopping king supers. For thousands of appetizing ingredients that inspire countless mouth-watering meals. And no matter what tasty choice you make, you'll enjoy our everyday low prices. Plus extra ways to save, like digital coupons worth over $600 each week and up to $1 off per gallon at the pump with points. So you can get big flavors and big savings, king supers, fresh for everyone, Fuel restrictions apply.