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August 23, 2011

Insured cash deposits

Many people are moving funds to banks and credit unions as a result of the recent market volatility and increasing questions about money market accounts.
A primary reason is that their deposits are insured by The Federal Deposit Insurance Corporation (FDIC), an independent agency of the U.S. government.  Some banks are currently offering interest rate higher than some money market funds.
FDIC insures all deposit accounts, but not other products that are offered and banks.  Stocks, bonds, mutual funds, life insurance policies, annuities are examples of financial products that are not covered by the FDIC and are sold at many banks  
The standard insurance amount is $250,000 per depositor, per bank, for each account ownership category.
A couple could each have $250,000 in an individual account, and an IRA account (to the extent of deposit accounts in the IRA account).  Deposit accounts in revocable trust accounts depend on the number of named beneficiaries.  Generally if there are five or fewer beneficiaries, the coverage is $250,000 per owner per beneficiary.
The National Credit Union Administration (NCUA) insures deposit accounts for federal credit unions and qualified state chartered credit unions.
Additional coverage for deposit accounts can be obtained through the Certificate of Deposit Registry Service (CDARS).  This service will split a large amount of cash among several banks in its network.
Planning for deposit accounts includes: determining the ownership of the accounts, documentation for retirement and trust accounts, anticipating future interest earned on the accounts, accounting for future deposits and withdrawals, and determining if the financial institution is FDIC or NCUA insured.

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