How to Protect Your Money with the FDIC

FDIC coverage limitations are a little complicated. If you know them, you'll avoid the possibility of expected losses on your bank deposits.

Back in the 1980s, Ronald Reagan envisioned a strategic defense system that would shield the U.S. from foreign missile attacks. Fast-forward 25 years, and a big concern of the day is shielding U.S. deposit accounts from getting drained by bank failures.

According to the FDIC, more than a dozen banks have failed since the beginning of the year. That's more failures in nine months than the country experienced in the previous five years combined. Fortunately, the FDIC is still doing its job; depositors have not lost a penny of insured funds since the program began in 1933.

Best offense is good defense

If you aren't sure whether your deposits fall within the FDIC's coverage limits, now's the time to check. These are the rules to know:

• Bank deposits only. FDIC insurance covers bank deposits only, including bank-issued CDs, money market deposit accounts (MMDAs), checking deposits, and savings deposits.

• Individual account limits. Historically, the coverage limit was $100,000 per account owner. If you have a checking account, savings account, and CD in your name at a single financial institution, those assets are covered up to $100,000 total (not $300,000). On October 3, 2008, the feds increased this limit temporarily to $250,000; it's set to revert back to $100,000 on December 31, 2009.

• Retirement accounts covered, sometimes. The FDIC separately covers bank deposits held in self-directed 401(k)s and IRAs. These funds are covered up to $250,000 total, per account owner. If you have an employer-sponsored retirement or pension plan, check your coverage with your plan administrator on the coverage. The FDIC doesn't cover mutual funds, stocks, bonds, money market funds, life insurance, and annuities.

• Joint accounts. One joint account is insured up to $250,000 in total. But if you and your spouse have a joint checking and savings account at one financial institution, each of you is insured up to a total of $250,000.

• Increased coverage for trust accounts. The FDIC says, "a trust account owner with up to five different beneficiaries named in all his or her revocable trust accounts at one FDIC-insured institution will be insured up to $100,000 per beneficiary." Therefore, you can increase your coverage to $500,000 by establishing a revocable trust account with five beneficiaries.

• All coverage limits are per owner and per bank. The stated limits cover total deposits for each ownership category. But if you spread your money out among ownership categories and still need more coverage, you simply have to move some of your deposits to another insured bank.

The FDIC built its strategic defense system 75 years ago, and it's still effective today. Your job is to structure your funds in such a way that they're protected under that shield. Do that, and you won't face losses-even if your bank is the next to fall.