Navigating Changes in FDIC Insurance Coverage: Ensuring Deposit Security Amidst Revised Limits

April 12, 2024

As of April 1, 2024, the Federal Deposit Insurance Corporation (FDIC) has implemented significant changes to its insurance coverage limits, particularly affecting trust accounts. These adjustments aim to simplify coverage rules while ensuring depositor protection. Here’s what you need to know to make sure your deposits are fully insured.

Understanding the Changes

The FDIC’s new requirements for deposit insurance, effective April 1, may lower coverage limits for bank customers with trust accounts. While intended to streamline insurance coverage rules, these changes could inadvertently push some depositors over FDIC limits, according to industry experts.

Revised Coverage Limits for Trust Accounts

Under the updated rules, trust deposits are now capped at $1.25 million in FDIC coverage per trust owner per insured depository institution. Within the trust, each beneficiary is eligible for insurance coverage of up to $250,000, applicable for up to five beneficiaries. However, if the trust has more than five beneficiaries, the overall coverage limit for the trust account remains at $1.25 million.

A trustee who currently manages over five beneficiary trust deposit accounts for the same trust with $250,000 per trust, will need to move some accounts to another bank to ensure FDIC insurance will protect those accounts for totals over $1.5 million.

Investment Accounts

Furthermore, certain investment accounts established prior to the implementation of the new regulations may experience coverage reductions. For instance, Certificates of Deposit (CDs) exceeding the coverage limit could become locked investments until the CD maturity date if the trustee opts to avoid incurring an early withdrawal penalty.

Consolidation of Trust Categories

A notable change involves consolidating revocable and irrevocable trusts into a unified category. This means that investors with both types of trusts held at the same bank may witness a reduction in their combined FDIC coverage from $500,000 to $250,000. This adjustment increases the likelihood of coverage loss for affected investors.

Strategies to Maximize Coverage

To amplify FDIC coverage beyond $250,000, depositors have several options, including:

  • Opening accounts at multiple FDIC-insured banks.
  • Establishing joint accounts, which doubles coverage to $500,000.
  • Diversifying ownership categories, such as single and joint accounts, to increase coverage.

As the FDIC adjusts its insurance coverage limits, it’s crucial for bank customers, particularly those with trust accounts, to understand the implications and take proactive measures to ensure their deposits are fully protected. By staying informed and exploring available options, depositors can navigate these changes effectively while safeguarding their financial assets.

For questions regarding the impact on your trust account, please contact KJK Estate, Trusts and Succession attorney Susan Friedman (SLF@kjk.com; 216.736.7272).