Financial experts are highlighting the importance of the $250,000 threshold for bank deposits in light of recent banking crises.
The threshold is the amount at which depositors should be aware of whether their money is insured by the Federal Deposit Insurance Corporation (FDIC), with coverage limits per depositor, per ownership category, or per bank. Deposits below $250,000 are covered, while amounts above may not be insured if unforeseen circumstances occur at a financial institution.
However, exceptions have been made for depositors with over $250,000 at Silicon Valley Bank and Signature Bank, who will be made whole even if they exceed the threshold.
President Joe Biden has suggested that the FDIC may guarantee deposits over $250,000 if further instability occurs. Although some experts argue that the threshold is not enough and should be raised, Treasury Secretary Janet Yellen has stated that uninsured deposits should only be covered in the event of systemic risk and significant economic and financial consequences.
While most consumers usually have less than $250,000 deposited in their bank account, those with larger amounts should take precautions to ensure their funds are protected.
However, what to do if you are one from those people who have more than $250,000? Here are some tips for you guys!
1. Find institutions guaranteeing higher deposit insurance
FDIC insurance is a safety net for depositors, as it covers up to $250,000 per depositor, per FDIC-insured bank, per ownership category. However, some financial institutions have found ways to provide their customers with more coverage than this limit. Citizens Bank of Edmond, for example, offers additional coverage to its depositors through IntraFi Network.
IntraFi Network is a financial technology platform that operates by opening accounts with various local FDIC-insured banks across its extensive network of over 3,000 institutions. Customers who use IntraFi Deposits can maintain an account at one local bank and still be insured for their entire deposit, even if it exceeds the $250,000 FDIC limit. IntraFi Network achieves this by dividing the deposit into smaller portions and allocating them to different banks within its network. Each bank takes responsibility for the portion allocated to it, and the customer receives a single account statement from the bank where they maintain their account.
The amount of additional coverage offered by IntraFi Network is significant, with a limit of up to $150 million per depositor. This is a reassuring option for customers with large deposits who want to ensure that their money is fully protected. It’s worth noting that other financial institutions may offer similar options, and depositors should research and compare options to find the best solution for their needs.
2. Add additional beneficiaries to your bank account
If you have a significant amount of money deposited, such as $1 million, only $250,000 would be covered under FDIC insurance, leaving $750,000 uninsured. However, there is a way to increase your coverage by designating beneficiaries.
By adding three beneficiaries – a spouse and two children, for example – you could receive an additional $750,000 in coverage, or $250,000 per beneficiary, as long as they do not have other deposits at the bank. When a single account owner designates one or more beneficiaries, the account is considered a revocable trust account, as per FDIC rules.
However, it is important to be cautious with this option. If beneficiaries are named, they will receive priority over any instructions stated in a will. Additionally, if children are named as beneficiaries but are not yet 18 years old, a guardian will need to take control of the money until they reach adulthood. This may result in additional expenses for the guardian to claim the funds.
3. Open bank account at another bank
Another option to consider if you have deposits exceeding the FDIC insurance limit is to open an additional account at another bank. This can be a straightforward solution to ensure your funds are fully insured. By splitting your deposits between two or more banks, you can have peace of mind knowing that all of your funds are covered by the FDIC insurance.
For instance, if you have $500,000 in your current bank account and you transfer $250,000 to another bank account, both accounts will be covered by the FDIC insurance, providing you with full insurance coverage for your deposits.
It’s important to keep in mind that opening multiple accounts at different banks may require additional management and maintenance on your part. Be sure to consider any fees associated with having multiple accounts and ensure that you can meet any minimum balance requirements.
In addition, you may want to consider the convenience of having all your funds in one place versus the added security of spreading your deposits across multiple banks. Ultimately, the decision on how to protect your deposits should be based on your individual financial goals and circumstances.
