Wealthy Americans may want to scrutinize how much of their bank deposits are protected by government-backed insurance.

New rules implemented last month limit the Federal Deposit Insurance Corporation (FDIC) to insure trust accounts at $1.25 million.

Previously, there were no restrictions on trust accounts; trust accounts were legal arrangements to ensure the allocation of personal assets to specific beneficiaries.

The FDIC said the new rules will make it easier for consumers and bankers to understand deposit insurance regulations. It is also designed to help FDIC agents determine more quickly which accounts are insured after a bank goes bankrupt.

For tens of thousands of bank customers, this change could reduce the amount of insurance in these accounts if their financial institution goes out of business. Those affected may need to restructure their deposits or open a new account with another bank to ensure their funds are protected.

Ken Tumin (Ken Tumin), founder of DepositAccounts.com under LendingTree, said, “This is a vague change... I'm not sure if the FDIC emphasized the loss of some insured deposits.”

“It's likely that many savers don't have the deposit insurance coverage they assumed when they first opened an account.”

What hasn't changed is that the FDIC still provides insurance of up to $250,000 per saver and every account category at every bank.

This is how it works: let's say you have $250,000 in your personal savings account at bank A and $50,000 in your personal checking account. This means you, as a saver, have $300,000 in one ownership category (single account) at the same bank, so only $250,000 is insured.

If you transfer this $50,000 to another bank, it will be fully insured. Also, if you deposit this $50,000 into a joint account — which is a different ownership category — the money will be fully insured even if it stays in the same bank.

Trust accounts provided a loophole and insured over $250,000. According to the Federal Deposit Insurance Corporation's old rules, each trust's beneficiaries will receive $250,000 in insurance protection. For example, if the trust fund designated 10 beneficiaries, the account would be insured for $2.5 million.

Tu Ming said, “Before this change, many people were unaware that theoretically, an almost unlimited amount of money can be insured at a bank through a trust account through FDIC regulations.”

That's not the case anymore. The new rules limit the number of trust beneficiaries receiving $250,000 insurance to no more than 5 people, for a total of no more than $1.25 million.

Furthermore, under the new rules, irrevocable trusts and revocable trusts are now classified as a category of ownership — trust accounts. This new category also includes any deposit account that designates a beneficiary when the owner dies, such as a certificate of deposit or CD.

As a result, trusts that previously insured 10 beneficiaries for $2.5 million are now only insured for $1.25 million.

“By April, you lost half (insurance),” Tu Ming said.

The Federal Deposit Insurance Corporation (FDIC) proposed these rules in 2022, a year before a series of bank failures led to a surge in discussions about lifting the $250,000 insurance cap. At the time, it was estimated that nearly 27,000 trust account depositors and slightly more than 36,000 trust account depositors “may be directly affected by this aspect of the final rule”.

Furthermore, merging revocable trusts and irrevocable trusts into one title category may reduce insurance coverage “in limited circumstances”.

However, the FDIC said that under the new regulations, the insurance coverage of a few irrevocable trusts may be increased, and overall, the insurance coverage for most depositors should not change.

To find out if you've been affected, use FDI's electronic deposit insurance estimator to calculate how much (if any) of each bank has exceeded the new insurance limit.

If you find that some of your money isn't insured right now, tell your bank. Financial institutions often work with clients affected by regulatory changes to ensure that their large deposits are protected. You might end up having to open a different type of account or deposit an uninsured amount into another bank account.