Managing Money

According to Wikipedia, “Keep it simple, stupid” is a design principal noted by the Navy in 1960 based on the premise that most systems work best if they are kept simple rather than made overly complicated. Albert Einstein had a similar philosophy, and it’s one that can be applied to everyday life, not just engineering or manufacturing. In fact, I have long encouraged clients to follow the KISS mantra when structuring their investment assets. Keeping the KISS philosophy in mind when placing your savings in banks or investments can pay dividends, especially as we age and what once seemed simple suddenly becomes unwieldy.

I often work with clients who have created a complex asset structure with savings spread across multiple banks, brokerage firms and other financial instruments. When I ask why they have so many accounts, the most common response is, “I don’t want to lose all my money if a bank, mutual fund company or brokerage firm goes bankrupt.”

It’s important to understand that there are checks and balances in place to protect savers and investors from losing their money in the event of a bankruptcy or fraud.

Banks are the basic financial institution used by people of all ages to safeguard their money. Many depositors know that the Federal Deposit Insurance Corporation (FDIC) offers up to $250,000 of FDIC insurance at a single bank, but many folks don’t realize with some planning, it’s possible to get far more coverage.

Obtaining more than $250,000 of FDCI coverage in a single bank is possible, because FDIC provides separate insurance for deposits held in different “ownership categories.” For example, ownership categories include single accounts, joint accounts, revocable trust

accounts, and irrevocable trust accounts to name a few.

This means that with proper planning, you can obtain FDIC insurance on your deposits in a single bank for far more than $250,000. For example, in a single bank a married couple could have one account in spouse one’s name, a second account spouse two’s name, and a third account owned jointly by spouse one and spouse two. In this case, spouse one’s account is insured up to $250,000; spouse two’s account is insured up to $250,000; and because the joint account is a different ownership category, it’s insured for up to $500,000 (each owner in the joint account is insured for $250,000).

With this ownership setup, the total FDIC insurance is up to $1,000,000 compared to only $500,000 of FDIC insurance if the couple left the entire $1,000,000 in one joint account.

Another way to extend FDIC coverage beyond $250,000 in a single bank is to title the account in a trust or use a Payable on Death (POD) designation, the latter of which falls into FDIC’s revocable living trust ownership category. A POD provides the account owner the ability to name a beneficiary on a nonretirement account so that the account will pass to the named beneficiary directly at death without going through probate. In the case of trust accounts and accounts with a POD, FDIC coverage is based on the named beneficiaries of each owner.

For example, a jointly owned account with two owners and a POD designation pointing to two beneficiaries will be insured for up to $1,000,000. Going back to the previous example, if the couple adds a

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second jointly owned account, but this one having a POD designation naming two beneficiaries, the couple can extend the possible FDIC insurance to $2,000,000. Recall the FDIC insurance limits apply separately to the FDIC ownership categories and the joint account with the POD falls into the revocable trust category, not the joint ownership category.

The rules for trust accounts are changing beginning April 1, 2024, so be sure to check out FDIC’s website, www.fdic.gov, for more information. FDIC insurance rules are complex, and the FDIC’s website provides information on how they work. FDIC’s website also features the Electronic Deposit Insurance Estimator (EDIE), which lets consumers and bankers know, on a per-bank basis, how the insurance rules and limits apply to a depositor’s specific group of deposit accounts.

In subsequent columns, we will discuss how you what protections are in place for investors using mutual funds, brokerage firms and insurance products.

MARK A. KEEN, CFP®, PARTNER, KEEN & POCOCK. SECURITIES OFFERED THROUGH THE STRATEGIC FINANCIAL ALLIANCE INC. (SFA), MEMBER FINRA/SIPC. ADVISORY SERVICES OFFERED THROUGH STRATEGIC BLUEPRINT LLC AND SFA. MARK KEEN IS A REGISTERED PRINCIPAL OF SFA AND AN INVESTMENT ADVISER REPRESENTATIVE OF SFA AND STRATEGIC BLUEPRINT LLC. SFA AND STRATEGIC BLUEPRINT ARE AFFILIATED THROUGH COMMON OWNERSHIP BUT OTHERWISE UNAFFILIATED WITH KEEN & POCOCK. NEITHER STRATEGIC BLUEPRINT NOR SFA PROVIDE TAX OR LEGAL ADVICE.

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