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Banking

FDIC Insurance: Explained

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

FDIC stands for the Federal Deposit Insurance Corporation. The FDIC insures the money in deposit accounts up to $250,000 per ownership category. You want your bank to be FDIC-insured to guarantee the money you keep in your accounts will be available to you should the bank fail.

FDIC history

The FDIC was established in response to the Great Depression by the Glass-Steagall Act. During the time period between the Civil War and the establishment of the FDIC in 1933, bank runs were a common occurrence.

You may be familiar with bank runs from watching the movie “It’s a Wonderful Life.” Essentially, people would get scared that their deposits were going to be lost to bad investment decisions by their bank. The panic would spread quickly, and result in a rush of customers trying to liquidate their deposit accounts. The Glass-Steagall Act successfully ended these bank runs by guaranteeing that if your money wasn’t available for liquidation at your bank, your money would still be returned to you via the FDIC insurance fund.

To this end, it has been wildly successful. Coverage started at $2,500, but has grown with the times to $250,000 per ownership category. Since the FDIC was officially opened in January 1934, depositors have not lost any money from their deposits at FDIC-insured financial institutions.

NCUA vs. FDIC insurance

FDIC insurance covers deposits in banks across the country, but it does not insure deposits at credit unions. That’s why the National Credit Union Insurance Fund, administered by the National Credit Union Administration (NCUA), was established in 1970.

However, the NCUA does not insure deposits at all credit unions. Federal credit unions must be NCUA members, but state-chartered credit unions only participate if they choose to do so. You can find out if your credit union is federally insured by looking for the NCUA logo on its site or at one of its branches.

What the FDIC insurance limit covers

The FDIC insures up to $250,000 per ownership category per person within a singular financial institution. There are 14 ownership categories. While you are unable to qualify for each and every ownership category, this does allow you to qualify for more than $250,000 worth of insurance as an individual.

The ownership categories for FDIC insurance are:

  • Single accounts
  • Joint accounts
  • Revocable trust accounts
  • Irrevocable trust accounts
  • Specific retirement accounts
  • Employee benefit plan accounts
  • Business/Organization accounts
  • Government Accounts
  • Mortgage servicing accounts
  • Irrevocable trusts with the financial institution as the trustee
  • Annuity contract accounts
  • Public Bond accounts
  • Custodian accounts for Native Americans
  • Accounts established in compliance with the Bank Deposit Financial
  • Assistance Program of the Department of Energy

What types of accounts does the FDIC insure?

FDIC coverage extends to many different kinds of accounts. Checking, savings, CDs and money market accounts are all included in these ranks. So are Health Savings Accounts (HSAs), custodial accounts, traditional IRAs, Roth IRAs, SEP IRAs, SIMPLE IRAs, self-directed 401(k)s, self-directed defined benefit plans whether they are money purchasing plans or profit-sharing plans, self-directed Keogh plans and Section 457 deferred compensation plans.

Defined benefit and contribution plans are also covered, along with employer-administered welfare plans, business deposit accounts, mortgage servicing accounts, annuity contract accounts and deposit accounts held by the Bureau of Indian Affairs to benefit Native Americans.

Remember that the FDIC max of $250,000 does not apply to each individual account, but rather to all accounts held within an ownership category.

What is not covered by FDIC insurance?

Not every account you can open at a bank qualifies for FDIC insurance. Annuities, mutual funds, stocks, bonds, government securities, municipal securities and U.S. Treasury securities all top the list of uninsurable products you may find at your bank.

Items kept in safe deposit boxes are also not covered. If your bank gets robbed or experiences a natural disaster resulting in loss of money, the FDIC will not cover the losses, though your bank will eat the loss rather than passing on the misfortune to you. Banks actually buy separate bonds as insurance policies for these situations.

FDIC regulations for deposit accounts

Because there are 14 separate ownership categories, you can have much more than $250,000 in insurable funds at any given FDIC-insured institution. The most basic way to understand this is the single account category, where all the accounts held in your name — either directly or via custodian or fiduciary — can only add up to $250,000. If you are a sole proprietor and have an account under a DBA, those funds will also count toward the single account limit.

Joint accounts with two account owners can be insured up to $500,000. The more account holders there are, the more insurance will be provided in increments of $250,000 worth of insurance per account holder. This limit includes money held in all joint deposit accounts, including DBA accounts with multiple owners, but does not include money held in single accounts.

Revocable trust accounts include accounts which either have a legal document drawn up by a lawyer designating them as a part of a revocable trust, or simply bank accounts in which you have set up to have beneficiaries upon your death. The first five beneficiaries receive $250,000 in coverage each, but if you have more beneficiaries the math gets a little more complicated.

You can use the FDIC’s Electronic Deposit Insurance Estimator to figure out your coverage amounts.

If you have an irrevocable trust which you can withdraw funds from in certain circumstances, the portion that you keep interest in will be counted toward the single account category. If you are a beneficiary and there are no contingencies placed on you receiving the money, the funds will also count toward your single account category. However, if the owner places contingencies on you receiving the money, like getting married or going to college prior to the funds being distributed to you, they will count toward the irrevocable trust category and be insured up to $250,000 per beneficiary.

If you have an irrevocable trust with you bank as the trustee, its funds will count toward the accounts held by a depository institution as the trustee of an irrevocable trust category, which is separate from the irrevocable trust category.

Certain retirement accounts include traditional IRAs, Roth IRAs, SEP IRAs, SIMPLE IRAs, self-directed 401(k)s, self-directed defined benefit plans, self-directed Keogh plans and Section 457 deferred compensation plans. Your category total for these plans is $250,000 regardless of the number of beneficiaries.

If you have a retirement plan through your employer which is administered by a third party, it will count toward your employee benefits plan account limit of $250,000. Examples of these accounts include pensions, 401(k)s and Keogh plans.

If you are Native American and have the Bureau of Indian Affairs (BIA) acting as a fiduciary on your behalf, the money held in these accounts are insured up to $250,000. If you hold a personal account as a Native American which is not administered by the BIA, it will not be in this category. Instead, it will count toward your single account limit.

As an individual, the other categories don’t apply to you. Rather, they apply to businesses, insurance companies and in some cases even the bank itself.

How to maximize FDIC insurance

One of the best ways to maximize your FDIC insurance is by taking advantage of the fact that your money can be held across many different categories. Irrevocable trusts are a particularly efficient way to do this as coverage can be extended to many beneficiaries, but you don’t necessarily have to distribute your funds equally upon your death, explains Ken Tumin, founder of DepositAccounts.com, another LendingTree-owned site.

“Sometimes someone might want to insure $1 million at one bank,” Tumin told MagnifyMoney. “You might do that with an irrevocable trust with four beneficiaries. But if you want to keep a majority of the money yourself, you don’t want to put beneficiaries on it. You can create a workaround by establishing one beneficiary who will get most of the money like your spouse, while the three others will receive a smaller amount. That way, you can get your coverage up to the full million.”

He also notes that some financial institutions offer deposit sweep programs, in which the money you deposit into your accounts at one financial institution is effectively spread across several financial institutions. You interact only with your bank, but behind the scenes, they’re spreading out your money so you can get the full $250,000 worth of insurance with each different financial institution your money is technically held within. Two prolific programs include the Certificate of Deposit Account Registry Service (CDARS) for certificates of deposit and Insured Cash Sweep (ICS) for money market and checking accounts.

Tips for keeping your money safe with FDIC insurance

Do not assume that any financial institution has FDIC insurance. In order to verify that your bank participates, use this handy tool.

Some financial institutions offer private deposit insurance. This is especially true in the realm of state-chartered credit unions, but some banks do it, too. Most notably, the state of Massachusetts has several private insurance funds which can insure funds in excess of FDIC coverage limits. The important thing to remember with these private insurers is that funds are not guaranteed by the federal government as they would be with FDIC- or NCUA-insured accounts.

Aside from making sure your financial institution actually has federal insurance policies, one of the best things you can do to protect your money is to make sure you understand the intricacies of the category rules. If you’re feeling overwhelmed, you can use the FDIC’s Electronic Insurance Deposit Estimator (EDIE) to figure out how to best allocate your money to maximize your insurance coverage.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Banking

How Much Will My Stimulus Check Be? Calculate Your Payment

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

As the coronavirus (COVID-19) pandemic continues to batter the economy — prompting the stock market to plummet and unemployment claims to spike — the U.S. federal government is throwing taxpayers a life raft, in the form of stimulus checks.

Congress has passed a $2 trillion relief bill that aims to provide emergency assistance to individuals, families and businesses affected by the coronavirus pandemic, including one-time payments made to individuals. The amount of money you can expect to see from Uncle Sam, though, is based on a number of factors, ranging from how much money you make to how many children you have.

Who qualifies for a stimulus check?

Under the relief bill — dubbed the CARES Act — most adults who have a valid Social Security number will be able to qualify for a stimulus check, with the size of that check based on your 2019 or 2018 tax return.

You must file a simple tax return if you don’t usually file a return: You also qualify for a stimulus check if you receive Social Security benefits for disability, retirement or Supplemental Security Income, according to the AARP. If you typically do not file a tax return because you receive Social Security benefits or have a low income, however, you will need to file a simple tax return to receive your cash payment.

You must fall below income thresholds: The bulk of those who do not qualify for a stimulus check will likely be high-earners: Under the CARES Act, if you’re an individual with no children who earns over $99,000 or are a married couple that filed jointly and are making more than $198,000, you are not eligible to receive a stimulus check.

You cannot be claimed as a dependent of someone else: Additionally, in order to receive a stimulus check, you cannot be claimed as a dependent of someone else. That’s noteworthy, and may mean that millions of dependents who are not children under the age of 17 could end up missing out on relief checks. As the Center on Budget and Policy Priorities points out, filers only receive an additional $500 for each child under 17, which could be problematic for people who support dependents like the elderly, adults with disabilities and college students.

You must have a valid Social Security number: To receive a rebate check, each member of the household (including children) is also required to have a valid Social Security number. Per the Center on Budget Policy and Priorities, this may mean that households of certain immigrant families with children who are U.S. citizens could still be denied a stimulus check.

How much are the stimulus checks?

The amount of your stimulus check is based off of your adjusted gross income, as well as how many children under the age of 17 you have. Here’s how the one-time, non-taxable payments break down:

  • Up to $1,200 per adult
  • Up to $2,400 for couples filing joint returns
  • $500 per child under the age of 17

However, the checks start to decrease by $5 for every additional $100 of income beyond the following income thresholds:

  • $75,000 for individuals
  • $112,500 for head of households (typically single parents)
  • $150,000 for couples who filed a joint return

Certain individuals with higher adjustable gross incomes aren’t eligible to receive a stimulus check at all. The checks completely phase out at the following income thresholds:

  • $99,000 for individuals with no children
  • $198,000 for married couples with no children

How does the government determine how much I get?

The government will determine the size of your cash payment based on the adjusted gross income (or your total gross income minus certain deductions, such as 401(k) contributions) and information reported on your 2019 tax return. For those who have not filed a 2019 tax return, tax returns from 2018 may be used instead to determine your check amount.

If you don’t typically file taxes and have no income – and instead rely on Social Security benefits – you are still eligible to receive a stimulus check. However, in an update on March 30, the IRS stated that those who “typically do not file a tax return will need to file a simple tax return to receive an economic impact payment.” This includes low-income taxpayers, senior citizens, Social Security recipients, some veterans and individuals with disabilities who are otherwise not required to file a tax return. They will not owe tax.

When will I get my stimulus check?

According to the CARES Act, the cash payments should be made as “rapidly as possible.” On March 30, the IRS announced that the distribution of the payments will begin within the next three weeks.

It’s also worth noting that if you have signed up for direct deposit with the IRS and have chosen to have your tax refunds deposited electronically — as opposed to receiving your tax refunds by mail as a paper check — you will likely receive your stimulus check faster, too.

Still, experts have been critical of that timeline, and have instead said the payment process could take months, not weeks. In 2009, for example, the Internal Revenue Service (IRS) took three months to send out checks to households as a cushion during the Great Recession.

How will I receive my stimulus check?

You can expect your stimulus check from the IRS to be either directly deposited into your bank account or mailed to you, based on the method in which you requested to receive your tax refund. However, the IRS also announced that in the coming weeks, the Treasury Department plans to open a web-based portal in which people can share their banking information with the IRS, enabling them to receive their payments via direct deposit as opposed to waiting for a check in the mail.

If you have filed your 2019 or 2018 taxes, there is no action needed from you, and the IRS will issue your payment automatically. In fact, the IRS is actually asking consumers not to contact them about the stimulus checks, stating it will make details available on its website.

Determine how much you will get from your stimulus check

To find out how much you can expect to receive from your stimulus check, reference the table below.

What you should do with your stimulus check

As many Americans face furlough or unemployment as a result of the coronavirus pandemic, a recent survey by MagnifyMoney found that most people intend to use their stimulus checks on necessities, like paying bills and buying groceries.

Many experts recommend keeping the money you receive from your rebate liquid, like in an emergency savings account, which should have enough funds to cover three to six months’ worth of living expenses.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Banking

ACH Transfers: Explained

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

ACH transfers in action
iStock

You may have come across the term ACH when looking at different banking options or making certain banking transactions.

ACH stands for Automated Clearing House, which is a network and processing system that financial institutions use to transmit funds electronically between banks and credit unions. ACH transfers help to cut down on costs and processing times.

ACH transfers can include depositing funds directly to your account (transfers in, or credits to you), or transferring money out of your account to make payments (debits to you). For example, when your employer deposits your paycheck to your bank instead of handing you a paper check, that is an ACH transfer. Other direct deposits made by ACH transfer can include income tax refunds or other types of refunds. ACH direct payments (transfers out) often are used when you pay credit card or retailers’ bills (either one-off or recurring).

How long does it take for an ACH transfer to process?

ACH debit and credit transactions tend to process pretty fast. The National Automated Clearing House Association (NACHA) has operating rules that specifically require ACH credits — when you receive money — to settle within one-to-two business days. ACH debits — when you pay money — will settle the next business day. In most cases, all ACH transfers are settled within the same business day. But that doesn’t mean that money will land in your bank account that quickly. It could take as long as a few days, depending on your bank or credit union’s rules and regulations.

ACH money transfers — rules and fine print

Most financial institutions don’t charge a fee for incoming or outgoing ACH transfers. However, you are limited to six withdrawals per month for a savings account based on the Regulation D rule. So, if you go over that limit, your bank or credit union may charge you what’s known as an excess transaction fee.

Another fee you may encounter is a non-sufficient funds (NSF) fee — when you don’t have enough funds to cover the amount you’re transferring. Whether this fee is charged at all, and its amount, depends on the financial institution, so it’s best to check with yours.

Also depending on the financial institution, the limits on transfer amounts will differ. NACHA imposes a $25,000 daily limit on individual transactions. In other words, if you make multiple transactions, each one is limited to $25,000 in a single day. If you go over that amount, then your transfer will be processed the next day.

Wire transfers vs. ACH transfers

Both wire and an ACH transfers involve one financial institution sending funds to another one. Although both are electronic transfers, wire transfers use a different network, called Fedwire, and can involve transfers within the U.S. or internationally. Wire transfers are sent directly from one physical place to another, whereas ACH transfers are sent through a network.

In addition to making a wire transfer at a bank, you may make it at a nonbank provider — companies specifically designed to help you send money domestically or abroad. These companies may not require you to give your bank information. Instead you’ll need the receiver’s name, your personal details and the cash upfront that you intend to send. With an ACH transfer, on the other hand, don’t have this option.

Free and fast ways to transfer money

ACH transfers aren’t the only way to send or receive money. There are many other options that allow you to get almost instant access to funds with no fees involved. Two of these are cited below.

Zelle

Zelle is a peer-to-peer payment service where users can receive, send or request money to and from other bank accounts by using either an email address or phone number. This works even if the sender and receiver use different banks. Zelle claims that it can send money within minutes for no fee.

Many banks already offer Zelle via their existing online platform or mobile banking app. So, you may access it that way. However, if your bank does not have Zelle embedded in its system, then you may download Zelle’s own mobile app, create an account and use it to send and receive money.

Popmoney

Similar to Zelle, Popmoney is is a payment service that may be available at your bank (via their mobile or online banking services) for free. All you need is the recipient’s email address or phone number and you can send money. If you decide to use the service via PopMoney’s website, you’ll be charged $0.95 per transaction. There is also a monthly limit of $5,000 if transfering from a bank account and $1,000 if doing so with a debit card. If you’re using PopMoney via your financial institution, you’ll need to check with them to see what their limits are.

Tips for sending money safely

When sending money online, you want to be sure that you’re sending the money to the right person and that your own personal details are protected. Sounds obvious, but for example, double check your Wi-Fi connection to make sure that it’s secured. Of course you don’t want hackers to steal your sensitive information.

You’ll also want to ensure that you are sending money to a reputable place. NACHA created a booklet to help consumers spot scams and fraudulent behavior, such as merchant impersonations — that is, when someone pretends to be a company and states that you owe money on a purchase or a bill.

If you find fraudulent activity in your account, notify your bank as soon as possible. Sometimes you can reverse your ACH transfer if you accidentally sent the wrong amount or you suspect that there’s been an error.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.