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FDIC protects money that's in savings, checking, money market and CDs to a limit
By Betty Lin-Fisher
Beacon Journal business writer
Published on Sunday, Mar 30, 2008
You've most likely seen the initials ''FDIC'' at your local bank, but do you know much about the Federal Deposit Insurance Corp., or how it protects your hard-earned money?
With the recent financial woes of Bear Stearns (which was an investment bank, different from a depository bank) and speculation that Cleveland-based National City Corp., the biggest bank based in Ohio, was seeking buyers, a few readers have asked about FDIC insurance.
How exactly does the federal insurance work and what would happen if a bank would close or fail?
Simply put, the FDIC insures all types of deposits at an insured bank, including money in checking, savings accounts, money-market deposit accounts and time deposits, such as certificates of deposit (or CDs).
Not covered are stocks, bonds, mutual funds, annuities, U.S. Treasury bills or bonds, even if you purchased them at a bank. Safety deposit boxes are also not covered, though those are usually covered by a bank's insurance or an individual's homeowner insurance.
The FDIC was established in 1933 after the early Depression era, when ''runs'' on a bank and bank failures were common and people lost life savings because there was no protection.
The federal insurance protects the balance of each depositor's accounts, up to the insurance limit, including principal and any accrued interest through the date of the insured bank's closing.
For most accounts, the insurance limit is $100,000 per person. For certain retirement accounts, the limit is $250,000 per owner, per insured bank.
Deposits held in different categories of legal ownership at the same bank can be separately insured by FDIC, so it's possible for someone to have more than $100,00 at one insured bank and still be fully insured. I'll get into that later.
The bottom line is the majority of people have less than $100,000 in the bank and are fully insured, said Greg McBride, a senior analyst with Bankrate.com.
''Because of FDIC insurance, depositors do not have to worry about the safety of their money, even if the bank fails,'' McBride said. ''For the vast majority of the population who does not have enough money on deposit at any one bank to exceed those FDIC insurance numbers, worrying about the notion of a bank failure is a complete waste of time.''
In the FDIC's 75-year history, not a single customer has lost a penny of insured deposits at an FDIC-insured institution, said spokesman David Barr.
Virtually every bank in the country is insured by the FDIC. Deposits at credit unions are not covered by the FDIC, but there's a similar federal agency, the National Credit Union Administration (NCUA), which similarly protects customers up to $100,000. Some credit unions opt for private insurance, which can protect customers up to $250,000.
To find out whether your bank is FDIC-insured, you can go to http://www.fdic.gov and search under ''bank find'' to look up your bank. If your bank is owned by a larger holding company or has been part of a merger, the name on the branch you use might not be the official business name registered with the FDIC. So if you don't see your bank's name on the list, call to get its official name.
All participating banks are supposed to display the FDIC logo, but Barr suggests verifying that FDIC participation.
''If it's an out-of-area bank and you can't physically see that bank, you want to be very, very careful. In today's day and age, it is easy for anybody to set up a Web page, say they're a bank offering 6 percent interest rates on six-month CDs and not truly be a FDIC-insured organization,'' he said.
More than $100,000
For customers who have deposited more than $100,000 at a single bank, there are ways to structure your accounts to get all of your deposits insured by the FDIC. The best way is to consult with your financial institution, to make sure you're fully protected.
It has to do with account ownership, or whose name the accounts are in, not what type of accounts you have or the number.
The FDIC insures single account holders at a single bank for $100,000, joint account holders for $100,000 each or a total of $200,000, and account holders of certain retirement accounts, such as IRAs and Roth IRAs, for $250,000. That's a possible total of $900,000 in insured deposits for a husband and wife.
So, let's say as a single account holder, you have three deposit accounts at the same bank — a savings, checking and CD account — that total $150,000. As a single account holder, your total would be insured for only $100,000. So your other $50,000 would be uninsured, unless you opened another type of ownership account, like a joint account, for that money.
Deposits at multiple branches of the same bank would not be insured separately. Only deposits at another insured bank would be separately insured.
Bank failures
Bank failures happen, but are rare in the grand scheme of the banking industry, experts say. More typically, a bank will be purchased by another bank. But even when a bank fails, because it has FDIC coverage, customers usually aren't affected, said the FDIC's Barr.
Bankrate.com's McBride spoke of an Atlanta bank that regulators shut down on a Friday. That weekend, customers were still able to get their money at ATMs and were able to do online banking transactions and receive their direct-deposit paychecks into their accounts.
Barr said a small Ohio bank that failed last year closed on a Thursday and reopened the next day as a branch of another bank. All of the accounts had been transferred to the new bank without any problems.
''We try to make it as seamless as possible for the customer and again, for the majority of customers of a failed bank, it will be business as usual,'' sometimes even with the same branch staff, Barr said. ''Literally, there's nothing you need to do. You just wake up the next day as a customer of a new bank.''
The FDIC is able to get all of the financial records and, if needed, would issue checks to affected customers, but it usually doesn't come to that. Customers aren't really affected until they have to get new checks from the new bank, he said.
Betty Lin-Fisher can be reached at
330-996-3724 or blinfisher@
thebeaconjournal.com.
You've most likely seen the initials ''FDIC'' at your local bank, but do you know much about the Federal Deposit Insurance Corp., or how it protects your hard-earned money?
Get the full article here.
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