Bank failures don't happen often, but they do happen. If you have your savings tied up in certificates of deposit, make sure you understand how FDIC insurance protects you and your money.

The short-lived reality show Maximum Exposure turned risky and sometimes injurious behavior into comedy. In comparison to the Max-X stunts, opening a certificate of deposit (CD) with your local bank hardly seems risky at all. Certainly you won't burst into flames or fly headfirst into the side of a building; but risk is risk, and you shouldn't take on more than you have to.

FDIC insurance limits

You may have heard it said that the FDIC insures the first $100,000 of individual deposits, and the first $250,000 of retirement deposits. While this is true, it leaves out some important information. For example, many depositors mistakenly believe that these limits apply to each account, and that keeping account balances below $100,000 results in full FDIC coverage. In fact, the FDIC's coverage limits apply to the combined balances of all accounts held in specific ownership categories. These ownership categories are: individual accounts, joint accounts, retirement accounts, and revocable trust accounts.

For individual accounts held at the same bank, the FDIC covers the first $100,000 of deposits. Separately from that, the FDIC also insures up to $100,000 per account holder for money held in joint accounts, and $250,000 per account holder for funds in certain retirement accounts. Living trust funds are insured for up to $100,000 per beneficiary. Proper structuring of your accounts, therefore, can yield much higher coverage than the individual limit of $100,000.

Structuring CDs for maximum insurance coverage

To see how this works, let's assume that you have $5,000 in a checking account, and $10,000 in a savings account with your neighborhood bank. In addition, you have an additional $200,000 that you'd like to invest in a certificate of deposit. If you open up a $200,000 CD in your name with the same bank, you won't be getting full FDIC coverage, because your combined individual balance would be $215,000.

A better idea might be to open a joint CD with your spouse. Under that scenario, your savings and checking deposits of $15,000 are covered by the individual limit. The CD would fall under the joint limit, which provides $100,000 coverage for you, and $100,000 for your spouse.

If you aren't married, take a portion of your deposit to other FDIC-insured banks. You can get full coverage by opening up one $100,000 CD at one bank, and a second $100,000 CD at another. If some of these funds are earmarked for retirement, make sure that they're held in a qualified retirement plan. That way, you'll get up to an additional $250,000 of coverage.

Minimizing risk is often a matter of preparation. To some, that means putting on a helmet before attempting a death-defying motorcycle jump. To others, it means knowing the limits and working around them. For more detailed information on FDIC coverage limits, visit

Published on November 23, 2009