Understanding Bank Account Ownership Categories and Maximizing FDIC Insurance

When you open a bank account, you might not realize that it falls into one of several ownership categories. These categories determine who owns the account and how much insurance coverage it receives from the Federal Deposit Insurance Corp. (FDIC) or the National Credit Union Administration (NCUA). Understanding these categories can help you maximize your insurance coverage and ensure your money is safe.

Common Bank Account Ownership Categories

Bank account ownership categories refer to who owns an account. Here are some common categories:

Single Accounts

A single account is owned by one person. Examples include a certificate of deposit (CD) held by an individual or a checking account held by a sole proprietorship business.

Joint Accounts

A joint account is owned by at least two people, such as a checking account or money market account for a married couple.

Revocable Trust Accounts

A revocable trust account is owned by one or more people and identifies beneficiaries who will receive the deposited money after the account’s owner or owners die. The owner can revoke, cancel, or change the trust at any time.

Irrevocable Trust Accounts

An irrevocable trust account is held by a legal entity known as a trust. The owner contributes assets to the trust but gives up the power to cancel or change this arrangement. In 2024, this category will be folded into the category of revocable trust accounts.

Business Accounts

A business bank account, such as a checking or savings account, is tailored to the needs of businesses of various sizes. One of the benefits of a business account is that it separates business transactions from personal transactions.

Certain Retirement Accounts

Some retirement accounts, such as traditional and Roth IRAs (individual retirement accounts), fall into FDIC and NCUA ownership categories for insurance purposes.

Employee Benefit Plan Accounts

These accounts include employer-sponsored pension, 401(k), and profit-sharing plans.

How to Maximize FDIC Insurance With Multiple Bank Account Ownership Categories

If a federally insured bank or credit union fails, the FDIC or NCUA protects account deposits up to certain dollar amounts. Those amounts are dictated, in part, by an account’s ownership category and start at $250,000 per owner.

The standard FDIC deposit insurance amount is $250,000 per depositor, per insured bank, for each account ownership category at the same bank. All deposits a person holds in the same ownership category at an FDIC-insured bank are added up and insured for up to $250,000. (If you hold a joint account, each person on the account is insured up to $250,000.)

The FDIC offers separate coverage for money held in different ownership categories. Therefore, you could get more than $250,000 in FDIC coverage if your money is divided among several account ownership categories at the same bank.

Example of FDIC Insurance Coverage for Joint Accounts

Consider a married couple with three joint accounts at one bank:

• Savings account: $100,000
• CD: $300,000
• Money market account: $100,000

In this case, all three accounts fall into the joint account category. The total balance is $500,000, or $250,000 per person. All of the accounts would be fully insured by the FDIC. However, if the overall total in this category exceeded $500,000, some of their money would not be insured.

Example of FDIC Insurance Coverage for Multiple Ownership Categories

Now, let’s say our married couple owns accounts in several ownership categories:

• Joint savings account: $150,000
• Revocable trust account: $225,000
• Spouse 1’s traditional IRA: $200,000
• Spouse 2’s traditional IRA: $250,000

In this example, the couple’s total insurance coverage goes up compared with the previous example. That’s because they’ve got money stashed in three separate account categories, rather than just one ownership category. Overall, each spouse is eligible for up to $750,000 in FDIC coverage in this example.

Maximize Savings With a High-Yield Savings Account

Regardless of whether you’re considering a single savings account or joint savings account, it might pay off to look into a high-yield savings account. Generally, a high-yield savings account offers a better interest rate than a traditional savings account does.

As of August 2023, the average interest rate for a savings account was 0.43%, according to the FDIC. At the same time, some high-yield savings accounts were paying rates above 5%.

A high-yield savings account might be a great place to set up an emergency fund or to more quickly meet financial goals, for example.

The Bottom Line

When you’re shopping for a place to park your money, you should consider factors like interest rates, fees, and customer service. Beyond that, figure out how much deposit insurance you’ll qualify for based on which bank account ownership categories are involved. Determining the difference between coverage for a single account and a joint account, for example, may make a big difference when it comes to ensuring your money is safe.

For any mortgage service needs, O1ne Mortgage is here to help. Call us at 213-732-3074 to speak with one of our expert loan salespersons. We are committed to providing you with the best service and helping you achieve your financial goals.