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FDIC Insurance Coverage Limits

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With all the recent bank failures and looming potential failures (WaMu is on everyone’s radar now), a lot of people are worrying about and searching for information about FDIC insurance. The FDIC, short of the Federal Deposit Insurance Corporation, is a government corporation that insures banks deposits up to, generally, $100,000. The corporation was created after the Great Depression to dissuade individuals from going to banks and withdrawing their money if they though the bank was going under. With the insurance protecting the deposits, there would be no need for people to ‘run’ to the bank to withdraw their funds before a potential collapse. With many banks, a bad situation is made fatal because of a run.

FDIC Insurance Coverage Limits

In a nutshell, each person at each institution has $100,000 of coverage under FDIC insurance limits. If you have less than $100,000 in deposits at an FDIC insured institution (they will have signs, or you can confirm by using the FDIC’s Bank Find tool or calling them up and asking – 877-ASKFDIC). There are certain assets at a bank that are not covered by FDIC and they include any debt issued by the US Government (bonds, bills, notes, etc.), stocks, bonds, and similar investments, as well as anything in a safety deposit box.

Each of those is covered by something else. US Government securities are backed by the government, stocks, bonds and similar investments are protected against fraud by SIPC insurance, and the safety deposit box is generally under the protection of your renters or homeowner’s insurance policy.

The worst thing you can do to a bank is to withdraw your funds. If you have less than $100,000, you’re protected by the FDIC; if you have more, then you have just cause in withdrawing your funds. When you withdraw your funds, the bank has to find the cash to give you. Since they’ve lent out so much of it, they have to figure out ways to get it back to you. Now multiply it by thousands of people withdrawing money, your classic “run on a bank” scenario, and you’ll see why banks collapse and must be rescued by the FDIC.

So, the best thing to do is to keep your deposits under $100,000 at an FDIC insured bank and relax. If the bank fails, chances are you will have access to your funds a couple days later (FDIC usually closes banks on a Friday and re-open them on Monday). When IndyMac collapsed, it was closed for Saturday and its doors were open on Monday as IndyMac Federal Savings Bank. When NetBank went under, people couldn’t log in for a day or two and then they all had access to funds via ING

How To Get More Than $100,000 Coverage

If you’re rolling the dough, the easiest way to get more than $100,000 of coverage is to deposit it at separate banks. The insurance covers you for $100,000 per person per institution so you would only need to spread your money out across multiple banks. With many of the best savings accounts within a percentage point of each other in interest APY, you don’t sacrifice much by spreading it around.

There are also ways to structure your accounts at a single bank such that you get more than the standard $100,000 of coverage. The easiest way is for a couple to put both of their names on a joint account, this increases coverage to $200,000 for the couple ($100,000 each). Remember, the coverage is on the person and not the specific account so you can’t just open more accounts at the same bank for more coverage.

Another way is through the use of Payable-on-Death (POD) accounts if they’re structured as revocable trust account. A POD account has listed beneficiaries and the account owner is insured up to $100,000 for each beneficiary. It gets a little complicated but Bank Deals has a good two part article on the subject (Part 1, Part 2). I’m not an FDIC expert (and to my knowledge, neither is Ken at Bank Deals, so consult a financial professional to confirm what you read).

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12 Responses to “FDIC Insurance Coverage Limits”

  1. Krod says:

    You’re wrong.

    Take your money out IMMEDIATELY if you have an suspicions that your bank is going under. If it’s 10 dollars to 100,000 dollars.

    OH cry me a river about how taking your money out is the worst thing for the banks. %!#& Them!

    We haven’t even seen the tip of the ice burg, we are headed towards an even greater depression and the FDIC will not be able to afford to insure all the banks it says it will. And if you say “That can’t happen”…. The Fed Resereve was created to stop a Great Depression from ever occuring again…and look what is happening.

    So…. Your advice is BOGUS and WRONG. If you feel your bank will be closing soon, take your money and RUN!

  2. jim says:

    Krod – %!#& Them??? The financial system is so tightly interwoven that the failure of a bank affects more than the bank itself, it affects other banks, other lenders, and other financial institutions.

    I’m not saying that we should all be altruistic and try to keep a bank in business but by rashly withdrawing your funds, contribute to the failure of the bank and an increased burden on taxpayers (which you are). Just let it be and things will hopefully right itself.

    Do you know something we don’t about the future or are you just guessing?

  3. CK says:

    Krod – Great Depression 2.0? I think not.

    Nice logo Jimbo.

  4. Krod says:

    @jim

    Sorry but taxpayers should not have to take on any of the burden for a bank or businesses bad decisions. There should be no bail outs or rescues. The only way for this problem to be fixed is not by letting it be, it’s by allowing these institutions to fail and the market to correct it’s self.

    I don’t know the future I do know, as an economist, the way things are headed. I was right 10 years ago and I am right today.

    @CK

    The Fed is willing to accept worthless paper and make loans from it. The problem ain’t liquidity; it is the problem of massive malinvestments that MUST be liquidated. We cannot have a recovery until that happens.

    And I don’t see that happening… not with Helicopter Ben, not with the total incompetence of our government economists, and not with our FIAT Money system.

    We are experiencing the most massive credit bubbles in financial history, the largest ever in absolute terms, exceeding that of 1929, bursting. There is no lender of last resort, not the Fed nor the U.S. government, large enough to hold asset prices up indefinitely. If they cannot support currencies when fundamental values change, then they surely cannot support a market as large as the stock market.

    So continue living in your dream world that Obama or McCain is going to fix.

  5. Krod says:

    @CK

    Also… I see you’re from CATO *gags*

  6. jim says:

    Krod – I agree with you but the problem is that our financial system is set up in a way that the failure of one has the potential of harming many. When Bear Stearns was “bailed out,” sure the government showed up with money but anyone who owned Bear Stearns through the bail out lost a lot of money. The FDIC insuring banks, those banks are generally gone and it’s only the depositors being saved as per FDIC limits.

    I personally think that we should take the pain now but I don’t think depositors should take it, businesses should be allowed to fail (as Lehman is) or acquired (like Merill Lynch). It’s funny because the limited government intervention is exactly what the Cato Institute advocates.

  7. Krod says:

    @Jim

    Cato has gone a looooooong way from what it once was. I won’t bore you with a history lesson…

    I have to go to work anyway, thanks for the morning discussion. That’s the reason I subscribe to this blog :)

    Krod

  8. jim says:

    I wouldn’t be bored but I’ll wait until your lunch break. :)

  9. Krod says:

    Okay. I’ll try and remember :)

  10. skizye says:

    This is what worries everyone:

    FDIC Can’t Afford Washington Mutual Failure

    “Washington Mutual had $143bn in insured deposits on June 30 – about
    three times the size of the deposit insurance fund, but less than half
    of its $307bn assets.”

    http://www.ft.com/cms/s/46b5513a-82bc-11dd-a019-000077b07658,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F46b5513a-82bc-11dd-a019-000077b07658.html%3Fnclick_check%3D1&_i_referer=&nclick_check=1

  11. CK says:

    Let’s clarify-

    I don’t work for the Cato Institue but I do support their work and most of their positions. I’d be interested to hear where you think Cato has gone.

    I certainly don’t think McCain, Obama, Congress, or a magic fairy will solve this “problem” That I can’t stress enough.

    I do think the market is in major turmoil and people are losing money (at least on paper), but hey that happens it’s called a free market and without risk there would be no reward.

    I’m generally not for “bailouts” but if it’s they are truly the pragmatic choice I can swallow it.

    When the market is down like this it’s time to buy.

  12. DLI says:

    So what is an average middle class person to do?
    Take out our funds and put them where-under the mattress?
    I am with Bank of America who just spent a lot of money to buy Merrill Lynch–how big a risk was that—

    How many more banks & large investment firms have to fail before we all realize this country is in serious trouble?


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