Knowing your insurance limits on bank accounts is key

The rules that govern federal deposit insurance are of more than passing interest to Bill Hogle, a 61-year-old Santa Monica retiree.

More than half his wealth is tied up in certificates of deposit, and he lives on the income they produce. He knows his money is in different kinds of accounts that make him eligible for more than $100,000 of insurance, and he's been banking on that knowledge.

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FOR THE RECORD:
FDIC coverage: The Personal Finance column in Business on Sunday erred in how it described insurance of individual and joint accounts. It said that each person's interest in individual and joint accounts is added together to determine that individual's insurance coverage. In fact, individual and joint accounts are insured separately. Therefore, you could have an individual account worth $100,000 and a joint interest in a $100,000 joint account and all of your deposits would be fully insured. —

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But, in the aftermath of the failure of Pasadena-based IndyMac Bank, we're all increasingly nervous.

The lure of relatively high rates paid by many of the nation's shakiest banks -- Countrywide, Fremont and IndyMac, to name a few -- has proved too tempting as overall market interest rates have fallen. Now, Hogle has nearly $200,000 in IndyMac and he's getting differing answers about whether it's all insured.

"I finally got through on the FDIC number, explained my situation and the guy said, 'I think those [accounts] are probably insured,' " Hogle said early last week. "Probably? I said, 'Aren't you the FDIC? Are they or aren't they?' He said he would have somebody call me back on Aug. 4."

Understanding how to set up your bank accounts is crucial for anyone who wants to deposit more than $100,000 in any one bank.

But getting answers on federal deposit insurance can prove vexing in the wake of a failure. After doggedly pursuing other FDIC officials, Hogle eventually did hear that his deposits were insured.

Want to avoid days -- maybe even weeks -- of worry? Here's a guide to how deposit insurance rules work and tips on where to go for more information.

The basics

The Federal Deposit Insurance Corp., which has a $53-billion reserve and full backing of the U.S. Treasury, stands behind deposits of as much as $100,000 per person, per bank.

In the event of a bank failure, those who have less than that amount in the failed institution can get a check for the entire amount from the FDIC immediately.

Depositors can get significantly more insurance coverage by managing the legal ownership of their accounts, but it can be a little complex.

There are five different types of legal ownership of a bank account, and each is treated differently when it comes to deposit insurance. The big differences involve accounts owned individually, jointly, as a business, as a retirement plan or as a trust of some kind.

* Accounts set up under "individual" and "joint" ownership are added together to determine whether they exceed the FDIC's $100,000 per person, per bank limit on deposit insurance.

Thus, if Jane Smith has a $100,000 certificate of deposit in her name alone and shares another $100,000 account with her husband, $50,000 of her assets would be uninsured.

The reason: The FDIC figures that each individual owns half of a joint account, unless they specify otherwise. In Jane's case, her $50,000 interest in the joint account, added to her $100,000 individual account, puts her $50,000 over the limit.

The Smiths could get coverage for the full $200,000 if they took Jane's name off the joint account and left the second account in her husband's ownership alone. They could do the same by merging their two accounts into one joint account.

* Business accounts can win additional and separate coverage if the business is a corporation, partnership or unincorporated association "engaged in an independent activity" -- in other words, if it wasn't just set up for insurance coverage alone.