General Principles of Insurance Coverage
Insurance is Provided on a Per-Bank Basis
(12 C.F.R. § 330.3(b))
Deposit accounts maintained in separately chartered banks are separately insured by the FDIC, even if the banks are affiliated, such as belonging to a common holding company.
Per-bank coverage means that all deposit accounts maintained by a depositor at one bank are insured separately from accounts that the same depositor maintains at a different, separately chartered bank.
Accounts that a depositor maintains at different branches or offices of the same bank are not separately insured. Rather, all deposit accounts held by a depositor at different branches or offices of the same bank are added together and insured up to the insurance limit.
Some banks maintain "virtual" branches or divisions that allow depositors to open and transact business on deposit accounts over the Internet. Often these "virtual" branches or divisions operate under a different name than the bank uses for its traditional branches, but they are all part of the same bank. In this situation, deposit accounts held at the "virtual" branches or divisions of a bank are aggregated with any deposit accounts a customer may have at the traditional retail branches of the same bank before applying the insurance limit.
Separate
Insurance is Provided to Each Depositor
Deposit accounts maintained by different depositors are separately insured. Depositors eligible to receive insurance coverage include natural persons, legal entities such as corporations, partnerships and unincorporated associations, and public units.
Separate
Insurance is Provided for Deposits in Different Ownership Rights and Capacities
(12 C.F.R. § 330.3(a))
FDIC insurance coverage is based on the concept of ownership rights and capacities. Deposits that a person or entity maintains in different ownership rights and capacities at one bank are separately insured up to the insurance limit. Deposits that a person or entity maintains in the same ownership rights and capacities are added together and insured up to the insurance limit.
The FDIC's rules and regulations for deposit insurance coverage describe the categories of ownership rights and capacities that are eligible for separate insurance coverage. FDIC refers to the categories of ownership rights and capacities as "ownership categories."
The Employee's Guide describes the following ownership categories:
- Single accounts
- Self-directed retirement accounts
- Joint accounts
- Revocable trust accounts
- Irrevocable trust accounts
- Employee benefit plan accounts
- Corporation, partnership and unincorporated association accounts
- Government accounts
Each of the ownership categories has specific requirements that must be met to receive separate insurance coverage under that category. (Chapter 3 describes the rules for each ownership category.) If an account fails to meet the applicable requirements, the deposits will be insured in another ownership category — usually the single accounts category — and the deposits will be added together with any other funds that the depositor has in that same ownership category.
Important!
All types of deposits (for example, checking accounts, savings accounts, CDs, interest checks and cashier's checks) that a depositor has at a bank in the same ownership category are added together before the FDIC applies the insurance limit for that category. Consequently, a depositor cannot increase insurance coverage by dividing funds into different accounts in the same ownership category at the same bank.
Similarly, using different co-owner's social security numbers on multiple accounts held by the same depositor in the same ownership category does not increase insurance coverage.
FDIC Will Rely on Bank Deposit Account Records
(12 C.F.R. § 330.5(a))
The FDIC relies upon the deposit account records of the bank to determine the ownership of an account, and thus the amount of coverage available. If the records are clear and not ambiguous, those records shall be considered binding on the depositor, and the FDIC shall consider no other records on the manner in which the funds are owned.
Deposit Account Records
(12 C.F.R. § 330.1(e))
Deposit account records include:
- Signature cards
- CDs and passbooks
- Account ledgers and computer records that relate to the bank's deposit-taking function
- Corporate resolutions authorizing accounts in the possession of the bank
- Official items
- Other books and records of the bank
The FDIC may request supplemental documentation such as articles of incorporation, copies of a trust, and affidavits to identify relationships between owners and beneficiaries. These documents may be used by the FDIC to confirm that the funds are actually owned in the manner indicated in the bank's account records and to determine whether the account qualifies for more than the basic insurance amount.
If the FDIC determines that a depositor has misrepresented the ownership of a deposit account in an attempt to increase insurance coverage, the FDIC will pay deposit insurance based on the actual ownership of the account.
Deposits Maintained by Non-United States Citizens or Residents
(12 C.F.R. § 330.3(c))
Any person or entity with deposits in an insured bank is entitled to deposit insurance coverage. Insurance coverage is provided whether or not the depositor is a United States citizen or resident.
Deposits Denominated in a Foreign Currency
(12 C.F.R. § 330.3(c))
Deposit insurance coverage is provided for deposits in an insured bank that are denominated in a foreign currency. Deposit insurance for such deposits will be determined in the amount of United States dollars that is equivalent in value to the amount of the deposit denominated in the foreign currency. If an insured bank fails, the value of the deposit will be determined using the rate of exchange "noon rates" for United States dollars as of the date the bank is closed.
Deposits in Insured Branches of Foreign Banks
(12 C.F.R. § 330.3(d))
Deposits in an insured branch of a foreign bank that are payable by contract in the U.S. are entitled to FDIC insurance coverage. The coverage limits are the same as for United States banks.
Deposits Payable Solely Outside the United States
(12 C.F.R. § 330.3(e))
Deposit insurance is not provided for any deposit of an insured bank that is payable solely at an office of the bank located outside the United States. Deposit insurance coverage is provided only for deposits that are payable at a location within the United States, including Puerto Rico, Guam, the Virgin Islands, the Commonwealth of the Northern Mariana Islands, American Samoa, and the Trust Territory of the Pacific Islands.
International Banking Facility (IBF) Deposits
(12 C.F.R. § 330.3(f))
No insurance is provided by the FDIC for funds held in an "international banking facility time deposit," or IBF account, as defined by the Board of Governors of the Federal Reserve System.
Effect of State Law
(12 C.F.R. § 330.3(h))
Deposit insurance is for the benefit of the owner or owners of the funds on deposit. Consequently, ownership of deposited funds under state law is a necessary condition for deposit insurance coverage. For example, in order for deposits held in the name of a partnership to be insured separately from the personal deposits of the partners, the partnership must be valid or recognized under state law.
Ownership under state law, however, is only one factor in determining the extent of deposit insurance coverage available for a particular deposit account. Deposit insurance coverage also depends upon the following:
- The deposit account records of the insured bank
- Satisfaction of the FDIC's requirements for the particular ownership category.
Some state laws, such as community property laws, do not affect deposit insurance coverage. For example, although deposits held in one name alone by a husband or wife in a community property state are considered jointly owned by both spouses, they are considered single accounts for deposit insurance purposes. You should check with the FDIC if you have questions about the applicability of a specific state law in calculating deposit insurance coverage.
Coverage Following a Bank Merger
(12 C.F.R. § 330.4)
When the deposit accounts of one bank are acquired by another bank, the newly acquired deposits are separately insured from any other deposits a depositor may already have at the acquiring bank for a set period of time. This grace period is intended to give depositors an opportunity to restructure their accounts in case the merger results in a depositor having deposits at the acquiring bank that exceed the insurance limit.
The FDIC provides separate insurance coverage for deposits that are acquired following a merger in accordance with the following schedule:
Non-time deposits (for example, checking, passbook savings, and MMDA accounts) acquired by a bank are separately insured for six months after the date of the merger.
Time deposits (for example, certificates of deposit) acquired by a bank are separately insured until the earliest maturity date or six months after the merger date, whichever occurs later, subject to the following rules:
- Time deposits that mature within the first six months and are renewed for the same dollar amount (with or without accrued interest added to the principal amount) and for the same term as the original deposit are separately insured until the first maturity date after the expiration of the six-month period.
- Time deposits that mature within the first six months and are renewed on any other basis, or time deposits that mature within the first six months and are not renewed and thereby become regular savings or demand deposits, are separately insured until the end of the six-month period.
Example #1:
Paula Jackson has two certificate of deposit accounts:
- $100,000 CD in a single account (an account in her name alone) at Anytown Bank
- $100,000 CD in a single account at Everyville Savings & Loan
When Everyville Savings & Loan (Everyville S&L) acquires Anytown Bank, Paula's CD from Anytown Bank remains separately insured from her CD at Everyville S&L until it matures. If her CD from Anytown Bank matures within six months after the merger date and is renewed for the same time period and dollar amount, it will remain separately insured until the new maturity date.
The original CD at Everyville S&L will not be affected since the six-month grace period only applies to the acquired deposits.
Important!
The grace period does not apply to a situation where two or more depositors merge. For example, if two corporations merge, and both have funds on deposit in the same bank, those accounts are aggregated as of the merger date and insured to a maximum of $100,000.
Grace Period Following The Death of an Accountholder
(12 C.F.R. § 330.3(j))
The death of an account owner can affect insurance coverage. Most often, the effect is to reduce the amount of insurance coverage that applies to a family's accounts. For this reason, it is important to encourage depositors to review the insurance coverage on their accounts whenever an account owner dies.
To ensure that families dealing with the death of a family member have adequate time to review and restructure their accounts if necessary, the FDIC will insure the deceased owner's accounts as if he or she were still alive for six months after his or her death. During this grace period, the insurance coverage of the deposit owner's accounts will not change unless the accounts are restructured by those authorized to do so. The FDIC will not apply the grace period if the result will be a reduction in coverage.
Example #2:
John and Susan Jones (husband and wife) have the following deposit accounts at the same bank:
| Account |
Account Title |
Ownership Category |
Balance |
1 |
Susan Jones |
Single |
$100,000 |
2 |
Susan and John Jones |
Joint |
$200,000 |
3 |
John Jones POD
to Susan Jones |
Revocable Trust |
$100,000 |
While both owners are alive, each account is insured in a separate ownership category, resulting in the full $400,000 being insured.
Susan's husband, John, dies. With his death, the right and capacity in which the funds are owned changes: all of the accounts are now owned by Susan as an individual, and are insured as her single accounts. If the bank should fail after the grace period expires and before Susan restructures her accounts, $100,000 will be insured and $300,000 will be uninsured.
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