FDIC Consumer News provides practical guidance on how to become a smarter, safer user of financial services. Each issue offers helpful hints, quick tips, and common-sense strategies to protect and stretch your hard-earned dollars.
We have chosen a couple of articles for you and invite you to enjoy full issues of FDIC Consumer News below.
Winter 2012-2013 – Practical Solutions for Protecting Your Money
Fall 2012 – Special Edition for Young Adults and Teens
Safe Mobile Banking: Our Latest Tips for Protecting Yourself
Using a smartphone, "tablet" computer or other mobile device to manage your finances can be convenient and help you monitor your money from practically anywhere. At the same time, it's important to take steps to protect your account information.
Be proactive in securing the mobile device itself. Depending on what security options are available on your device, create a "strong" password (consisting of unusual combinations of upper- and lower-case letters, numbers and symbols) or PIN (with random numbers instead of, say, 1234 or the last four digits of your Social Security number) and periodically change it.
"Always secure the device with a strong password or PIN in case it falls into the wrong hands," said Elizabeth Khalil, a Senior Policy Analyst in the FDIC's Division of Depositor and Consumer Protection. "Don't give that password or PIN to anyone or write it down anywhere." Also, never leave your mobile device unattended. And make sure you enable the "time-out" or "auto-lock" feature that secures your mobile device when it is left unused for a certain period of time.
Be careful about where and how you conduct transactions. Don't use an unsecured Wi-Fi network, such as those found at coffee shops, because fraud artists might be able to access the information you are transmitting or viewing. Also, don't send account numbers or other sensitive information through regular e-mails or text messages because those are not necessarily secure.
Take additional precautions in case your device is lost or stolen. Check with your wireless provider in advance to find out about features that enable you to remotely erase content or turn off access to your device or account if you lose your phone. Quickly contact your financial services providers to let them know about the loss or theft of your device. Notifying your bank quickly will help prevent or resolve problems with unauthorized transactions.
Research any application ("app") before downloading it. Just because the name of an app resembles the name of your bank - or of another company you're familiar with - don't assume that it is the official one of that bank or company. It could be a fraudulent app designed to trick users into believing that the service is legitimate.
"The best place to download an app is from the official Web site of the bank or company that you are doing business with or from a legitimate app store. Note that the business will often direct you to an app store," said Jeffrey Kopchik, a Senior Policy Analyst in the FDIC's Division of Risk Management Supervision. "Also, if possible, be sure to protect your financial apps, ideally with a password that is different from the password for your device."
Be on guard against unsolicited e-mails or text messages appearing to link to a financial institution's Web site. Those could be "phishing" messages containing some sort of urgent request (such as a warning that you need to "verify" bank account or other personal information) or an amazing offer (one that is "too good to be true") designed to lead you to a fake Web site controlled by thieves.
"The concern is that on that fraudulent site you may provide sensitive information while believing you are providing the information to your bank or another trusted party," said Matthew Homer, a Policy Analyst in the FDIC's Division of Depositor and Consumer Protection.
For more on phishing, see Avoiding Scams: Sticking to the Basics Can Go a Long Way.
FDIC Insurance: Understanding the Different Account Categories
How deposits are separately protected up to at least $250,000 at each bank
You probably know that the basic FDIC insurance coverage is $250,000 for each depositor at each insured institution. But did you know there are many different ways depositors can be insured for that amount?
"The FDIC deposit insurance rules provide for what are commonly called separate 'ownership categories.' What this means is if the depositor meets the requirements of an ownership category, he or she is insured up to at least $250,000 in those categories," said Martin Becker, Chief of the FDIC's Deposit Insurance Section.
Here we will look at the six most common FDIC insurance categories that apply to individuals and how depositors could be fully insured at any one bank if their bank were to fail. Note that the examples below are solely to demonstrate ways you can be insured by the FDIC; they are not intended as a specific guide for your estate planning.
Single Accounts: The most common way an individual is covered by FDIC deposit insurance is to simply open an account in his or her own name. If the deposit does not list any beneficiaries, the depositor's funds are insured for up to $250,000 under FDIC's single ownership category. So, if John and his wife Mary each have single-ownership deposits at the same bank, their individual accounts there are separately insured for up to $250,000.
As for John and Mary's children, minors typically cannot have bank accounts unless a custodian has established bank deposits for them. A common way to transfer funds to a minor is to set up an account under the Uniform Transfers to Minors Act or "UTMA," as adopted by the state in which the deposit will be established. Under UTMA, the minor child is considered the legal owner of the funds. Therefore, for the purpose of FDIC deposit insurance coverage, each child is insured for up to $250,000 in total per FDIC-insured bank.
While any amount can be given to a minor child, federal gift tax laws must be complied with to avoid taxes. The maximum gift amount in 2013 that is excluded from federal taxes, for gifts from one individual to another, is $14,000 per year. "Based on current tax law, parents can each give, free of federal taxes, a total of $14,000 to each of their children - $28,000 per child per year," noted Calvin Troup, an FDIC Senior Consumer Affairs Specialist.
Joint Accounts: Two or more people who are co-owners of funds can have FDIC deposit insurance coverage under the joint ownership category. To qualify, each owner must have equal withdrawal rights to the funds and there cannot be beneficiaries named on the account. Under the FDIC's rules, each co-owner is separately insured for up to $250,000 for his or her ownership share in all qualifying joint ownership deposits he or she has in any one bank.
Typically, joint ownership deposits are held as "joint tenants with right of survivorship," which means that when one owner dies, the ownership of his or her share of the funds typically passes to the remaining co-owner or co-owners on the account. As an example, Kathy and her daughter Ellen would be fully insured for up to $500,000 in a joint account, in addition to any single ownership or other accounts they might have at the same bank.
Certain Retirement Accounts: What about retirement funds such as Individual Retirement Accounts (IRAs)? Under the "Certain Retirement Accounts" deposit insurance category, an individual's self-directed retirement funds are insured for up to $250,000 per owner. Self-directed means the consumer chooses how and where the money is deposited. Let's say that David and Barbara each have IRA deposits in an FDIC-insured bank. Those deposits would be separately insured for up to $250,000.
Remember that depositors would need to establish their own IRA account(s) at the bank since IRAs cannot be co-owned. Assuming that David and Barbara qualify to contribute to their own IRAs, their basic contribution (under current law) would be $5,000 each per year. If you have any questions about your tax situation, you should discuss them first with your financial advisor before opening a retirement account.
Employee Benefit Plan Accounts: If you participate in a retirement plan that is not self-directed -- such as a pension plan or a defined benefit plan -- the FDIC will insure your ownership interest in any deposits placed by your employer's third-party administrator up to $250,000, provided that certain requirements are met. The FDIC often refers to this as "pass-through coverage" because the insurance passes through to the employee, who is considered the owner of the funds. These deposits also are insured separately from any accounts that the employer or you may have in the same FDIC-insured institution.
Revocable Trust Accounts: A revocable trust deposit is an account used for testamentary purposes - that is, the account specifically names one or more beneficiaries who would receive funds when the trust deposit owner(s) is deceased. The FDIC recognizes two types - "informal" and "formal."
An informal revocable trust is a simple way to leave funds to your beneficiaries through a contract set up in the bank. The testamentary intent of the account transfer is typically conveyed by terms such as "payable-on-death" (POD) or "in-trust-for." For more complicated estate planning and greater flexibility in distributing assets, a depositor may use a formal revocable trust, which is typically a written document drafted by an attorney.
Deposits can be established in an FDIC-insured bank using either an informal or formal trust with up to $250,000 insured for each of the beneficiaries named. If Bill and Teresa use the formal revocable trust method since they have three minor children to whom they wish to leave all of their assets equally among the children, the "Bill and Teresa Revocable Trust" would be insured up to $1.5 million (two owners times three beneficiaries times $250,000).
Irrevocable Trust Accounts: These are deposit accounts held in connection with a trust for which the owner typically gives up ownership of the assets and the right to modify the agreement. Irrevocable trust accounts commonly are established based on either state law, a written trust agreement or, quite often, due to the death of an owner of a revocable trust. In general, an irrevocable trust deposit account is insured up to $250,000, and perhaps more if the interests of the beneficiaries are unconditional. This insurance will be separate from the coverage for other types of deposit accounts the owner or the beneficiaries have in the bank.
Let's say that Frank creates an irrevocable trust for a child and places close to $250,000 in it. The funds would be fully insured up to $250,000 under the irrevocable trust category, separately from any other deposits Frank has in other types of accounts at that same bank.
The bottom line: Our examples show the benefit of discussing with your banker the deposit insurance coverage for the various account categories. Do you want to learn more about how you can protect all of your deposits with FDIC insurance? To speak with a deposit insurance specialist, call the FDIC toll-free at 1-877-ASK-FDIC (that's 1-877-275-3342). Additional FDIC resources are listed in For More Help or Information on FDIC Insurance.