Friday, August 1, 2008

Your BANK and FDIC insurance Part I (the basics)

In July 11th 2008 IndyMac made headlines when the FDIC office took over the bank. The media showed pictures and video clips of people in front of IndyMac branches trying to take their money out. Since the fall of IndyMac two other banks have also failed, First National Bank of Nevada and First Heritage Bank in Newport Beach in California. Unlike the IndyMac fall, these other two banks did not get same the press coverage. If you visit the FDIC website under Failed Bank list you will notice that more than 30 banks have failed since 2000. What does this mean for you? is it the fall of our banking system? should we put our money under the mattress? can we still trust our banking system?

Yes. We have a strong banking system and No, we do not need to hide our money under the mattress. As you can see from the list many banks fail but are taken over by the FDIC and the majority of depositors do not lose their money.

In this section: Your Bank and FDIC insurance, I will discuss what is FDIC, the basics of FDIC insurance, what it covers and ownership categories and how to maximize its benefits. The information below is not top secret, you can find it on the FDIC brochure provided by each Financial institution that is FDIC insured.

Who is the FDIC?
It is short for the Federal Deposit Insurance Corporation. It is an independent agency of the United States government. The FDIC protects depositors against the loss of their insured deposits in an FDIC insured bank or savings association fails. FDIC insurance is backed by the full faith and credit of the United States government.

If a depositor's accounts at one FDIC insured bank or savings association total $100,000 or less the deposits are fully insured. A depositor can have more than $100,000 at one insured bank or savings association and still be fully insured provided the accounts meet certain requirements. In addition, federal law provides for insurance coverage of up to $250,000 for certain retirement accounts.

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 deposits (CDs). FDIC 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, bonds, 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 $100,000 per depositor, per insured bank. The $100,000 amount applies to all depositors of an insured bank except for owners of certain retirement accounts, which are insured up to $250,000 per owner, per 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.

Deposit 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 $100,000 at one insured bank and still be fully insured.