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By David Vollrath, Executive Director Union County Foundation These are unusual economic times. I know this because every time I pick up a newspaper or turn on the network TV news I’m told so. Because of our heightened awareness of the state of the economy some of us begin to ask questions that perhaps never before seemed important. Suddenly letters like F.D.I.C. and S.I.P.C. seem a whole lot more relevant than they did a year ago, a decade ago, or even a generation ago. What follows is some basic information regarding these two forms of insurance that may be applicable to some of your investment holdings. Please know that detailed information on FDIC and SIPC is easily accessible and available on line at ww.fdic.gov and www.sipc.org. Seeking to better understand the coverage of each is a worthy goal in any economic climate. FDIC stands for Federal Deposit Insurance Corporation. According to Wikipedia: “The Federal Deposit Insurance Corporation is a United States government corporation created by the Glass-Steagall Act of 1933. It provides deposit insurance which currently guarantees checking and savings deposits in member banks up to $100,000 per depositor. Accounts at different banks are insured separately. One person could keep $100,000 in accounts at two separate banks (which are not branches of the same bank) and be insured for a total of $200,000.” Here is the point that most people do not have a good understanding of… “Also, accounts in different ownerships (such as beneficial ownership, trusts, and joint accounts) can be considered separately for the $100,000 insurance limit. The Federal Deposit Insurance Reform Act of 2005 raised the amount of insurance for an Individual Retirement Account to $250,000. What the “separate ownership” point means is that if your deposits at a covered institution are spread out over the spectrum of qualifying ownership classes you can essentially protect multiples of the $100,000 base coverage. The FDIC web site points out that there are basically five primary “ownership” classes which each qualify for separate FDIC protection. The main classes are: single accounts, joint accounts, revocable trust accounts (also known as POD or payable-on-death accounts), certain retiremet accounts, and living/family trust accounts. Here is an example of how mutiples of $100,000 (in this example $1,000,000) can be fully protected by FDIC at one member institution. (1) A husband and wife with two children could set up a joint CD and receive $100,000 each of FDIC protection. (2) Both the husband and wife could have single $100,000 CDs and receive $200,000 of FDIC protection. (3) The husband and wife could each have a CD payable-on-death to the other spouse and receive $200,000 of FDIC protection. (4) The husband and wife could have CDs payable-on-death to each of the two children and receive $400,000 of FDIC protection. In order for a bank to offer FDIC protection the bank must follow certain liquidity and reserve requirements. Wikipedia points out “that banks are classified into 5 groups according to their risk-based capital ratio: Well capitalized: 10% or higher, Adequately capitalized: 8% or higher, Undercapitalized: less than 8%, Significantly undercapitalized: less than 6%, Critically undercapitalized: less than 2%. When a bank becomes undercapitalized the FDIC issues a warning to the bank. When the number drops below 6% the FDIC can change management and force the bank to take other corrective action. When the bank becomes critically undercapitalized the FDIC declares the bank insolvent and can take over management of the bank.” As you can see FDIC protection means a lot more than you might initially think. As is generally the case the more we understand about something the better off we are. Next time we will talk about SIPC protection which applies to certain brokerage firm held investments. The Union County Foundation is equipped to help you achieve your charitable goals by providin: planned giving and estate planning resource information, charitable gift annuities/life income plans, and a broad array of charitable choices including Scholarship Funds and donor advised funds. The Foundation encourages you to work closely with your professional advisor(s) as you develop your estate plan and consider your present and future charitable goals. Please call us at 937-642-9618, email info@unioncountyfoundation.org,, reference our website at www.unioncountyfoundation.org, or stop by our Marysville office at 126 N. Main St. We are committed to helping you… “preserve your footprint in time.” |
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