Increasing FDIC limit by beneficiary?

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AQ
Posts: 885
Joined: Mon Feb 25, 2008 10:38 pm

Increasing FDIC limit by beneficiary?

Post by AQ »

Now CD rates go up again and I'm tempted to open some CD accounts. Would like to make sure my understanding for FDIC limit is correct:

Suppose I have two kids A & B. I can open the following accounts:

1. my own name
2. Add Kid A as beneficiary
3. Add Kid B as beneficiary
4. Add both A & B as beneficiaries

So I'll get insured with 1mm limit with the aforementioned setup?

P.S. I did some online reading but not sure those discussions about revocable trusts stuff. I presume in this context, adding a beneficiary is kind of set up a 'trust'?
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prudent
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Re: Increasing FDIC limit by beneficiary?

Post by prudent »

You can use this online tool to model your ideas
https://edie.fdic.gov/
123
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Joined: Fri Oct 12, 2012 3:55 pm

Re: Increasing FDIC limit by beneficiary?

Post by 123 »

You might also want to consider US Treasuries, easy to buy at auction in a brokerage account at most places. Treasury rates are sometimes higher than CDs and they are not subject to state income tax. With treasuries you have much higher insurance because they are backed directly by the US Treasury (no FDIC limit). The downside to treasuries is that if you want your money before maturity you have to sell the treasury, you may get more or less than you paid depending on how interest rates have changed. But if you always hold to maturity they're easy to deal with.
The closest helping hand is at the end of your own arm.
secondcor521
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Joined: Wed Sep 10, 2014 4:11 pm

Re: Increasing FDIC limit by beneficiary?

Post by secondcor521 »

AQ wrote: Wed Aug 17, 2022 4:26 pm Now CD rates go up again and I'm tempted to open some CD accounts. Would like to make sure my understanding for FDIC limit is correct:

Suppose I have two kids A & B. I can open the following accounts:

1. my own name
2. Add Kid A as beneficiary
3. Add Kid B as beneficiary
4. Add both A & B as beneficiaries

So I'll get insured with 1mm limit with the aforementioned setup?
I did a similar thing at IndyMac Bank years ago, but I just did it as:

1. Kid A
2. Kid B
3. Kid C

I chose this structure because I had three kids, the limit at the time was $100K, I had between $200K and $300K to park there, and the above setup was simple to discuss. I confirmed it verbally at the time by calling the FDIC themselves.

IndyMac was taken over by the FDIC when I had this structure in place. It worked as expected and I didn't lose a penny. I was thankful that I had personally verified it myself before doing this. I was also still nervous that weekend.
Alan S.
Posts: 12669
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Increasing FDIC limit by beneficiary?

Post by Alan S. »

AQ wrote: Wed Aug 17, 2022 4:26 pm Now CD rates go up again and I'm tempted to open some CD accounts. Would like to make sure my understanding for FDIC limit is correct:

Suppose I have two kids A & B. I can open the following accounts:

1. my own name
2. Add Kid A as beneficiary
3. Add Kid B as beneficiary
4. Add both A & B as beneficiaries

So I'll get insured with 1mm limit with the aforementioned setup?

P.S. I did some online reading but not sure those discussions about revocable trusts stuff. I presume in this context, adding a beneficiary is kind of set up a 'trust'?
Scenario 4: Just you as owner with two kids as beneficiaries - your FDIC limit for this account is 500k, not 1mm.
PeninsulaPerson
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Location: Metro Boston

Re: Increasing FDIC limit by beneficiary?

Post by PeninsulaPerson »

AQ wrote: Wed Aug 17, 2022 4:26 pm
P.S. I did some online reading but not sure those discussions about revocable trusts stuff. I presume in this context, adding a beneficiary is kind of set up a 'trust'?

You may want to check with the bank on that. IANAB (I am not a banker ... :wink: ) but - as I understand it from a friend who is a community banker - the FDIC coverage ties to the named owners of the account/s.

Not sure what you mean above, OP, by "adding a beneficiary" could be kind of setting up a "trust."

While a trust could be an owner of an account (I guess - not sure about that!), that would presume you have those trusts for your children. And you may. If it matters. But if you don't, getting the trusts set up could be more expensive than the value of the deposit insurance you are trying to get. Again, I urge you to ask your banker and/or lawyer about the ramifications - because, if you die (which is way more likely than that you will need the FDIC insurance, I bet!) - the bank will be compelled to distribute the $$$ the way the accounts are set up!

Plus bear in mind that named owners of accounts are full owners of accounts - with rights to make withdrawals at any time without notifying the other owner/s! Even a POD/payable on death designation will give that money to the kid if the account owner passes away. Be sure that's what you want -- especially if you are doing it "just" to get the FDIC insurance which most people will never have a claim on anyway!

Speaking of FDIC insurance, one way around the limits is to open accounts at different banks. That can be somewhat inconvenient but - from what I have heard - it's a classic strategy.

Maybe someone here who is a community banker will check in to give you on-the-ground info!



AQ wrote: Wed Aug 17, 2022 4:26 pm
Suppose I have two kids A & B. I can open the following accounts:

1. my own name
2. Add Kid A as beneficiary
3. Add Kid B as beneficiary
4. Add both A & B as beneficiaries

So I'll get insured with 1mm limit with the aforementioned setup?

P.S. Since (I believe) it's up to $250,000 per person per account, if your "aforementioned set-up" worked -- which I do not believe it does -- you would have $2million of coverage, if my math is right. But you will have to see if you can do it that way, with your kids as "beneficiaries" and not co-owners of the accounts.
Last edited by PeninsulaPerson on Thu Aug 18, 2022 9:46 am, edited 3 times in total.
MrJedi
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Joined: Wed May 06, 2020 11:42 am

Re: Increasing FDIC limit by beneficiary?

Post by MrJedi »

Adding a beneficiary is not the same as having a trust. A trust is a separate legal entity you need to create and then you would need to register that trust with your bank.
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