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Plan Well, Retire Well

Saving and investing your money
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Bank Failures, FDIC Insurance, and What the Media ISN'T Telling You


It was all over the news Monday and Tuesday. IndyMac Bank failed and depositors were panicked, lining up to take out their money. The media broadcast numerous stories like this: "I had $240,000 in IndyMac Bank and I lost $50,000 of it."

I'd like to tell the other side of the story, the story of the people who didn't lose money and whose stories therefore weren't "newsworthy." I actually wonder how many depositors the media had to go through to find those who had lost money, because most of the stories would have gone like this:

"I had $3000 in my checking account, and I didn't lose a penny. There was just one day where I couldn't access my account, but that was all."

Or maybe like this:

"I'm 73 years old, and I have my life savings in that bank - over $200,000. Now I realize that was stupid. But I was lucky. All of my accounts at this bank are payable on my death to my three kids. I didn't realize it, but I get $100,000 of insurance for each of my 'beneficiaries', so we were covered! We aren't going to lose anything."

"I just sold my house two weeks ago and had $198,000 in this bank. I was sure I'd lost most of it. But the account was titled jointly in the names of my husband and me. Since both names were on the account, we were insured up to $200,000. We didn't lose anything! I'm so relieved!"

(Please note that all of these stories are fictional; I created them just for illustrative purposes.)

What's quoted all the time is oversimplified but true, that you're insured up to $100,000 in covered accounts at any single insured bank or savings association. (NCUA provides similar insurance for most credit unions.) But there are many instances, like in the "stories" I made up here, in which people had more insurance. How much insurance do you have? The FDIC's Electronic Deposit Insurance Estimator (EDIE) is a cool little tool that will let you figure that out. It will help if you have your statements right there in front of you, so you can see exactly how your accounts are titled. The FDIC also has a clearly written booklet with lots of examples that will help you understand all the ins and outs of account insurance.

But here's the deal: we as consumers have both rights and responsibilities. Here are what I believe are your responsibilities when you have an account at any financial institution, be it a bank, savings & loan, or credit union:

  • Know who you're dealing with.
    • Is the bank legitimate? The neighborhood bank that's been there for 20 years is a no-brainer, but a storefront or internet bank you've never head of could be a fraud.
    • Is it insured? Seeing the FDIC sign, like the one at the beginning of this post, at the bank or on its website is a good sign. (For credit unions, look for the NCUA sign.) But even better, use the Bankfind tool on the FDIC website or call 1-877-275-3342 to verify that it is an insured institution. That will also verify that an unfamiliar bank is legit.
  • Understand what type of account you have.
    • Depost accounts (checking, savings, money market accounts, CDs) are insured.
    • Investment accounts (mutual funds, annuities, stocks, and bonds) are not.
    • Contents of safe deposit boxes are not insured by the FDIC. They may be covered by your homeowner' policy; check with your insurer about what your policy covers.
  • Pay attention to how each account is titled, including Payable on Death (POD) or other informal trust designations. These designations override any bequests made in your will for those accounts, so you should also review your overall estate plan.
  • Don't keep more than $100,000 in one bank, unless you're certain that the titling of the accounts gives you additional insurance that covers all of your money. Move some money to an account at a different bank (NOT another branch of the same bank). Also, evaluate whether you are keeping too much of your portfolio in cash. Perhaps you should be diversifying and putting some of that money into investments such as stock mutual funds.
  • Know the terms of your accounts:
    • minimum balance, how it is determined, and fees for dropping below that amount.
    • whether checks for which there are insufficient funds will be paid. If they are, what fees you'll owe for that service and whether you need to take specific steps to pay back that "loan."
    • other fees, including those for debit card usage.
    • any benefits to which the account entitles you, such as free money orders, travelers checks, etc.
  • Make your accounts work for you. Check the interest rate and what balances earn that rate. Investigate whether a different type of account at that bank, or a similar account at another bank would pay you a higher rate.
  • Read all correspondence from your bank, including announcements printed on your monthly statements. Fees and other terms of your account can change.
  • Periodically check to see whether there are new accounts at this bank, or at other banks, that would meet your needs better.

What would you add to this list? What do you think about the news coverage of the IndyMac bank failure? Click on my name below and let me know what you think.



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