It’s a Wonderful Invention

How Joint Accounts Help Maximize Deposit Insurance

I don’t have your money. It’s in Tom’s house… and Fred’s house. [George Bailey, It’s a Wonderful Life]

i don't have your money

In order to stimulate the economy and drive new home sales and other large purchases banks have always been encouraged to lend money. When you really get down to it lending money at interest is the only way to expand the economy, otherwise the amount of money in the world is finite and simply exchanging goods and services for dollars would never amount to any kind of growth. See my archived post “How to Make Money from Thin Air”.

But what happens when everyone tries to take their money out of the bank all at once? That’s the catalytic event that forms the plot of the 1946 classic film, “It’s a Wonderful Life”.

In the 1940s there was no way to insure your deposits at a bank or credit union. In fact it wasn’t until the 1960s that the government of Canada created the Canadian Deposit Insurance Corporation (CDIC) to protect the bank deposits of its citizens. Up until then the kinds of events that drove George Bailey to consider suicide were all too common. If there were ever a run on the bank people could be ruined, in order to fund a bank run houses could be foreclosed on and personal savings wiped out in a matter of minutes for no other reason than the bank needed the cash.

Today the CDIC and other similar vehicles throughout out the world use premiums paid through bank fees and taxes to ensure that up to $100,000 of deposited money is protected from catastrophic loss and bank failure. In short, your deposits are guaranteed. But what if you have a joint bank account, as about 64 percent of married couples do?

It is not commonly known but the insurance on a bank account is individually held. What that means is that if you have a joint bank account with your spouse your deposits are doubly insured, up to $200,000. And here’s the kicker, according to information published by the CDIC in the fall 2014 issue of Forum (The Official Magazine of the Financial Planning and Life Insurance Industry), if one spouse dies and the bank records are not updated they will still insure both spouses deposits. To quote the CDIC’s own documentation;

The joint deposits would still be insured separately from any accounts registered only in the surviving spouse’s name. If the bank’s records were not updated before its failure, any payment by CDIC would still be made to the set of joint owners.

So the point here is this. Not only does it make good sense from a personal budgeting and convenience point of view for a married couple to maintain a joint bank account. It also creates a greater amount of security for your savings and when one spouse dies you should still keep their name on your accounts so that you can maximize the insurance coverage for your money.  Yes you may incur some legal fees in order to get at that extra money, it will be payable to the deceased spouse’s estate, but that’s a small price to pay for a doubling of your insurance.

George Bailey would have been a lot happier if this kind of insurance had existed in the 1940s and the movie “It’s a Wonderful Life” would have been a lot shorter. Seriously how long is that thing? It must be close to 4 hours!  I guess the downside would have been that Clarence would have had to look elsewhere to get his wings, but he was a smart guy, I’m sure he would have figured it out eventually.

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