Protection for Cash Deposits

As we goes to press, there have been 21 bank failures recognized by the FDIC in calendar year 2008.   That is hardly a huge number given the number of U.S. banks in operation.  However, it is worth noting that at least one source states that Wachovia was apparently less than a day away from being taken over by the FDIC and no one seems to believe that such bank failures are actually over. Under these circumstances, understanding the protections provided by federal agencies to deposit holders can be important.

Generally speaking, FDIC insurance is currently $250,000.00.  This is only a temporary limit.  Under current law that limit returns to $100,000.00 on January 1, 2010.  Should your bank “fail”, deposits are guaranteed to be available to a depositor up to the insured amount applicable at that time.  This insurance applies to deposits made to checking accounts, savings accounts, bank money market accounts, and certificates of deposit.  It does not apply to, among other things, contents of safe deposit boxes, insurance bought through your bank or stock shares bought through (or in) your bank.

The limits apply to different account ownership categories. If for example, a husband and wife own a joint account, up to $500,000.00 of that account is shielded ($250,000.00 per co-owner).  However, each of husband and wife can also have an individual account, that gets its own $250,000.00 worth of insurance.  So through December 31, 2009, the couple in our example could have $1,000,000.00 of insured deposits.  Similarly, if one of these individuals held funds in a different account ownership category, such as an IRA, that account ownership category gets a separate $250,000.00 of insurance all to itself.

Admittedly, maximizing FDIC protection is not an issue for the vast majority of depositors’ you only need to begin to think about it if you have more than $250,000.00 in any one particular bank.  However, the FDIC’s recent activities directly benefit many of the rest of us also; the FDIC’s new “Temporary Liquidity Guarantee Program” now guarantees “non-interest bearing deposit transaction accounts” of participating FDIC insured banks.  In plain terms, this generally means that your employer’s payroll account is guaranteed if your employer’s bank fails.

One final question, what if an individual banks with a credit union and not a “bank” that is regulated by the FDIC?  In practical terms there is no difference, provided that you bank with one of the 98% of all credit unions that are insured by the “National Credit Union Administration.”  The rules are the same; just make sure that you see a blue sign for the NCUA at your branch.

— Rod Fluck

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