Your client has $600,000 in one savings account at one bank. FDIC covers $250,000 per depositor, per institution, per ownership category. She has $350,000 completely uninsured, and does not know it.
Banks accept deposits, make loans, and offer financial services. They are insured by the FDIC, $250,000 per depositor, per institution, per ownership category.
HIGH-FREQUENCY: That "per ownership category" qualifier gets tested constantly. A single person can increase total FDIC coverage at one bank by holding accounts in different categories:
- Individual accounts
- Joint accounts
- Trust accounts, including payable-on-death (POD) accounts, formal revocable trusts and most irrevocable trusts. For FDIC insurance, POD accounts are informal revocable trusts created through the bank's beneficiary designation; formal revocable...
- IRAs and certain retirement accounts
Your client with $600,000 in a single savings account in one ownership category has $350,000 exposed. Restructure across categories and she can be fully covered at the same bank. Say she is married with two adult children:
Each category gets its own limit, and the joint and trust categories scale with the people in them.
Common mistakes
- Confusing FDIC and SIPC. FDIC = bank deposits when a bank fails. SIPC = brokerage accounts when a firm fails and assets are missing. Neither covers market losses. Trap: "SIPC will reimburse $250,000 of market losses in her brokerage account."
- Thinking a state insurance license alone covers variable products. Variable annuities and variable life require dual licensing, state insurance plus FINRA registration. The trap answer lists only one license. If the word "variable" appears, both licenses are required.
- Confusing RIA fiduciary duty with Reg BI. The distinguishing word is "ongoing." RIA duty is continuous. Reg BI applies at the point of recommendation only. Describing both as "fiduciary" leads to wrong answers.
Bottom line
- FDIC insures bank deposits; SIPC covers brokerage firm failure; neither reimburses market losses
- FDIC: $250,000 per depositor, per institution, per ownership category; multiple categories at one bank raise total coverage
- SIPC: $500,000 per customer, with a max of $250,000 in cash
- Credit unions use NCUA, not FDIC, with identical coverage mechanics
Exam shortcut
FDIC vs. SIPC: if the question says "deposit," think FDIC (or NCUA for credit unions). If it says "brokerage firm failure" with missing assets, think SIPC. If it says "market decline," neither applies, that is the trap answer. For variable products, the word "variable" always means dual licensing.
The full lesson (about 2,193 words, 15 min read) adds 2 worked examples, all 5 common mistakes, a self-check, free in the app.
Learning objectives
- A.3
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