You are reading The Voice, the e-mail newsletter of The Special Needs Alliance. This installment was written by Special Needs Alliance member H. Amos Goodall, Jr., CELA, of State College, Pennsylvania. Mr. Goodall is a Certified Elder Law Attorney (by the National Elder Law Foundation), and has practiced law since 1976. He is also a Fellow of the American College of Trust and Estate Counsel, and a member of the National Academy of Elder Law Attorneys. Mr. Goodall primarily works in special needs and elder law planning, business organization planning, and real estate and business litigation.

November 2008 - Vol. 2, Issue 18

Article photo In an uncertain financial market, many folks worry about the safety of their savings and whether retirement assets will be available for their future needs.

The overall health of a bank or other financial institution has a direct bearing on the security of its customers’ assets. Smaller community banks that steered clear of riskier loan transactions are not likely to be experiencing the same “credit crunch” facing larger financial institutions. Nevertheless, readers may want to investigate the quality of their banks through online rating services like This website rates U.S. commercial banks, savings institutions and credit unions on a one to five star rating, with five stars as the highest rating. In Pennsylvania, for example, only sixteen financial institutions in the entire State have a one-star rating.

Unfortunately, even highly rated banks can fail, which is the reason for protection offered by the Federal Deposit Insurance Corporation (“FDIC”). Since its creation in 1933, the goal of the FDIC is to ensure that no depositor loses a penny of insured deposits. The FDIC does not insure stocks, bonds, mutual funds, life insurance policies and annuities, even if they were purchased through an insured bank. Coverage is limited to accounts, including checking and savings accounts, money market deposits and certificates of deposit up to the deposit limit. In addition, brokers and other agencies often have their own insurance, which may cover some of the investments that are not eligible for FDIC coverage.

What are the limits of this protection? It was recently raised to $250,000. Although temporary through December 31, 2009, depending on the financial climate in the future, this limit may be made permanent.

The basic rule is that FDIC insurance covers a depositor with up to $250,000 in a bank. If two or more people own deposit accounts with equal rights of access, they are each deemed to own one-half of the account. Each person’s share of a jointly owned account is insured up to $250,000. Thus, if John and Mary have a $520,000 jointly owned certificate of deposit at an insured bank, then the couple are insured up to $500,000. The uninsured amount would be $20,000.

Recently, the FDIC adopted new rules for what it calls “Revocable Trust Accounts.” These accounts are either “Payable on Death/POD” or held “In Trust For/ITF” accounts, or Revocable Trusts created for estate planning purposes (such as “living trusts,” “family trusts,” or similarly titled accounts). Funds in these accounts are insured to a greater degree. The FDIC looks at the number of beneficiaries (people who will receive the money upon the depositor’s death) to determine the number of units of insurance that are applicable. Thus, while the depositor is the insured party, coverage is provided for the interests of each named beneficiary. Generally, the FDIC insures the interests of each beneficiary up to $250,000 for each eligible owner, so long as the account title indicates the existence of a trust relationship, and, for POD accounts, each beneficiary is specifically named. Thus if Bill has a $250,000 POD (or revocable trust) account with his wife Sue as beneficiary, Sue has a $250,000 POD (or revocable trust) account with Bill as the account beneficiary, and Bill and Sue jointly have a $1.5 million POD (or revocable trust) account with all three children as joint beneficiaries, the entire $2 million is insured.

Moreover, an account owner with up to five beneficiaries named in all revocable trust accounts at one FDIC institution will be insured up to $1,250,000. More than five different beneficiaries named will be insured for the greater of $1,250,000 or the total amount of all of the beneficiaries’ interests, limited to $250,000 per beneficiary.

What if this isn’t enough?

One method would be to keep an account with slightly below the limit in several different banks, running back and forth from bank to bank to make deposits, withdrawals and rolling over the accounts. A number of banks across the United States, however, have gotten together to make this easier to accomplish. More specifically, an association of banks, the Certificate of Deposit Account Registry Service (CDARS), allows depositors to enjoy full FDIC insurance on accounts with up to $50 million. This service allows a participating bank to accept a certificate of deposit and redeposit some funds in the name of the depositor in other participating banks. Since the FDIC insurance limit is allocated per institution, it is possible to spread a depositor’s funds among several different banks, each with a separate ceiling. Consumers using CDARS coordinate investments through local banks participating in the CDARS program. One interest rate is received for CD investments through CDARS, so for the depositor the financial arrangement is much simpler. The depositor receives one statement every reporting period, although funds may be at several different banks. Of course, placing all funds under one bank’s CD program makes it hard to shop for CD rates at maturity.

This is a general summary of the Federal Deposit Insurance Corporation program. Of course, the most important protection is the solvency of one’s own bank, and depositors should investigate the financial stability of their local institutions. I believe depositors will be pleasantly surprised when they analyze their community banks. Furthermore, online resources like will help in analyzing each bank, and programs such as CDARS will allow some investments to be spread out for greater FDIC protection.

For additional information, contact your banker or financial advisor. Also, many investment advisors can arrange for a portfolio of insured CDs.

About this Article: We hope you find this article informative, but it is not legal advice. You should consult your own attorney, who can review your specific situation and account for variations in state law and local practices. Laws and regulations are constantly changing, so the longer it has been since an article was written, the greater the likelihood that the article might be out of date. SNA members focus on this complex, evolving area of law. To locate a member in your state, visit Find an Attorney.

 Requirements for Reproducing this Article: The above article may be reprinted only if it appears unmodified, including both the author description above the title and the “About this Article” paragraph immediately following the article, accompanied by the following statement: “Reprinted with permission of the Special Needs Alliance –” The article may not be reproduced online. Instead, references to it should link to it on the SNA website.