Last week Federal Regulators took over another 7 banks, brining this year’s total to 52. This is already double the number of bank closings from all of last year. FDIC Failed Bank List According to news reports, the FDIC had to pay out over 300 million just to keep these 7 banks from becoming insolvent.
Watch This Shocking 60 Minutes Report
After the stock crash of 1929 and over a thousand bank failures, President Franklin D. Roosevelt and the Congress created the Federal Deposit Insurance Corporation (FDIC) in 1933. The purpose was to provide a federal government guarantee of deposits and maintain stability and public confidence in the banking system of the United States.
From the FDIC Website:
What does FDIC deposit insurance cover?
FDIC insurance covers all types of deposits received at an insured bank, including deposits in checking, NOW, and savings accounts, money market deposit accounts, and time deposits such as certificates of deposit (CDs).
FDIC deposit insurance covers the balance of each depositor's account, dollar-for-dollar, up to the insurance limit, including principal and any accrued interest through the date of the insured bank's closing.
The FDIC does not insure money invested in stocks, mutual funds, life insurance policies, annuities, or municipal securities, even if these investments were bought from an insured bank.
The FDIC does not insure U.S. Treasury bills, bonds, or notes. These are backed by the full faith and credit of the United States government.
How much insurance coverage does the FDIC provide?
The basic insurance amount is $250,000 per depositor, per insured bank.
The $250,000 amount applies to all depositors of an insured bank.
Deposits in separate branches of an insured bank are not separately insured. Deposits in one insured bank are insured separately from deposits in another insured bank.
Deposits maintained in different categories of legal ownership at the same bank can be separately insured. Therefore, it is possible to have deposits of more than $250,000 at one insured bank and still be fully insured.
My Advice Is To Keep No More Than 25% Of Your Liquid Funds On Deposit At Any One Bank. Sure, you can try and be clever and combine your accounts with a spouse, open trust accounts, an IRA, and push the FDIC coverage to the limit, but why not just use multiple banks? I saw an interview several months ago with a man that lost hundreds of thousands of dollars in IndyMac Bank. He said that he was counseled by the bank on how to structure his accounts so that they would all be insured. He had accounts designated for himself, his wife, his various businesses and corporations, etc… The long and the short of it is that he was told that he lost more than half of his money due to the advice he received from the bank. I had to ask myself why he did not just spread his money out among several different banks? It is also important to remember that the FDIC could run out of money. According to recent reports, the FDIC may soon run out of money. If you believe the talking heads, you should not worry about the FDIC failing since the government will bail them out. I would not be so sure about that. There will come a day when the U.S. government runs out of money, and we are closer to that now than ever before.
Why Keep Much Of Your Money In A Bank At All? There are much better yielding investments that offer much greater safety than bank accounts. A typical brokerage firm such as Charles Schwab provides coverage of up to $500,000 per account through SIPC on your investments. I am going to suggest to you that this may be a great time to have someone review your investments and bank holdings.
Federal Credit Unions And The Banking Crisis. Federal Credit Unions deposits are not insured by the FDIC but by the National Credit Union Share Insurance Fund (NCUSIF). The coverage is similar in amounts to the FDIC ($250,000). Established by Congress in 1970 to insure member share accounts at federally insured credit unions, the NCUSIF is managed by NCUA under the direction of the three-person NCUA Board. I feel no better about Federal Credit Unions than I do about U.S. banks.
Finding Out How Much Trouble Your Bank Is In? Bank Rate Monitor has a free service that rates banks from 1 to 5 stars based on their financial soundness. Just out of curiosity (a few months back), I did a search in Illinois and found 29 banks receiving a safety rating of only one out of five stars! A similar search in the state of Florida revealed more than 40 banks with the lowest safety rating. Wow, did this information turn out to be right on.
How Easy Is It To Collect On FDIC Insurance? Although everyone wants to make it sound like getting your money from a failed bank is no big deal, It may become more and more difficult as additional banks fail. I vividly remember stories of people back in the late 80’s having to wait months to be able to get their money out of a failed bank. So, while the government wants you to just sit back and not worry, my suggestion is that this is a good time to take a close look at where your money is.
Interesting Fact: The FDIC has only enough money in reserves to cover about 2% of all insured deposits! How safe does that make you feel? Let me put this another way; if more than 2% of the banks go under the FDIC will be close behind. Consider this quote from Sheila Bair, Chairman of the FDIC:
“….the deposit insurance fund could become insolvent this year,” Bair wrote in a March 2 letter to the industry.
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My main website is www.ChristianMoney.com
James L. Paris
