Question

We all know that commercial banks via the FDIC insure their deposits up to $250,000 per account. (Everything said up to this point is true). --- Suppose you won $25,000,000 from the California State Lottery. To fully secure this money in the U.S. banking system, either you would need to open up 100 accounts at 100 different banks with $250,000 in each account and/or open up 100 "joint accounts" with your name and the names of 100 other family or friends and put a maximum of $250,000 in each account. Conclusion: If you deposited the entire $25,000,000 check into your local FDIC insured bank on Monday, November 23, 2020 under your name only and if that bank became insolvent (it's like a bankruptcy) the very next day on November 24th, then according to FDIC rules you would only be able to get $250,000 from the FDIC.

True or False?

Answer 1

The statement is true; to fully insure $25,000,000, it would need to be spread across multiple FDIC-insured accounts since the FDIC only insures up to $250,000 per depositor, per insured bank, for each account ownership category.

Step-by-step explanation:

The conclusion presented in the student's question is true. FDIC insurance guarantees depositors will receive up to $250,000 of their deposits in each insured bank account if the bank fails. So, if you deposit the entire $25,000,000 Lottery winnings into one FDIC-insured bank under your name only and the bank becomes insolvent the next day, you would indeed only be able to recover $250,000 from the FDIC. To fully insure the full amount of your winnings, you would indeed need to distribute the funds in increments no greater than $250,000 across different FDIC-insured accounts or joint accounts with other individuals.

To secure such a large sum, some individuals or businesses may also consider financial vehicles beyond traditional deposit accounts, such as investment options that come with different levels of risk and return. However, if keeping at banks and ensuring FDIC coverage is the priority, then spreading the funds across numerous accounts is necessary to achieve full insurance coverage of the $25,000,000.