Wealth Management

Millionaires support raising Federal Deposit Insurance Corp. limits. They may be overlooking ways to access more coverage on deposits now

Customers outside a Silicon Valley Bank branch in Beverly Hills, California, on March 13, 2023.
Lauren Justice | Bloomberg | Getty Images

Most millionaires — 63% — support Congress raising FDIC coverage limits following the recent failures of Silicon Valley Bank and Signature Bank earlier this year, a new CNBC survey finds.

The survey found the wealthiest millionaires are most supportive of raising those limits, with 67% of those with $5 million or more in assets, according to CNBC’s Millionaire Survey, which was conducted online in April.

The survey included 764 respondents with $1 million or more in investable assets.

Currently, the Federal Deposit Insurance Corporation insures $250,000 per depositor for each ownership category for deposits held at an insured bank.

FDIC basic coverage limits were last changed in response to the financial crisis of 2008.

That year, the standard maximum deposit insurance amount was temporarily raised to $250,000, from $100,000. Congress made that change permanent in 2010.

Since then, the $250,000 coverage level has remained unchanged.

The March failures of Silicon Valley Bank and Signature Bank — and early May takeover of First Republic — have prompted renewed focus on whether FDIC’s current coverage should be updated.

How future deposit insurance may change

The FDIC in May released a report that outlined three options for the future of the deposit insurance system.

That includes a first option of limited coverage, which would maintain the current structure with a “finite” deposit insurance limit across all depositors and types of accounts. This may include an increased, yet also “finite,” deposit insurance limit, the FDIC’s report states.

Alternatively, a second reform option could usher in unlimited coverage with unlimited limits.

A third choice, targeted coverage, would provide different levels of deposit insurance coverage for different types of accounts, with higher coverage for business payment accounts.

In May, FDIC Chairman Martin Gruenberg spoke positively of the third option when testifying before the Senate banking committee.

“Targeted coverage for business payment accounts captures many of the financial stability benefits of expanded coverage while mitigating many of the undesirable consequences,” Gruenberg wrote in his written testimony.

Providing higher coverage on business accounts would increase financial stability because it would help limit the risk for spillovers from uninsured deposits associated with business accounts, he noted.

Notably, Congressional action would be required for any expansion of FDIC insurance.

How investors can boost FDIC coverage now

Because it has been so long since the current $250,000 coverage limit has been raised, some argue it is time to lift it once again.

“At a minimum, I would think it would be $500,000 just to deal with inflation, and I think the FDIC may need to consider that over time,” said Ted Jenkin, a certified financial planner and the CEO and founder of oXYGen Financial, a financial advisory and wealth management firm based in Atlanta.

Jenkin, a member of the CNBC Financial Advisor Council, said that when Silicon Valley Bank collapsed, people were contacting his firm to find out the best way to maximize their FDIC insurance.

“Most people generally speaking don’t have millions of dollars of cash in the bank,” Jenkin said.

At a minimum, I would think it would be $500,000 just to deal with inflation.
Ted Jenkin
CEO of oXYGen Financial

As of December, more than 99% of deposit accounts were under the $250,000 deposit insurance limit, according to the FDIC.

“But in the millionaire class, there are a lot of people now that may be sitting on $1 [million], $2 [million], $3 million in the bank,” he said.

One of the biggest mistakes people make is to open up more bank accounts with the intention of amplifying their FDIC coverage on those deposits, Jenkin said.

Instead, they may access higher levels of coverage if they add more beneficiaries — for example, their children — to those accounts, he said.

Every beneficiary added brings another $250,000 in coverage, based on today’s limits.

But one caution is that the way bank accounts are titled will supersede your will, Jenkin said.

Investors may also amplify the amount of insured balances by having different kinds of accounts, such as savings accounts, individual retirement accounts or trust accounts.

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