$250,000 FDIC and NCUA Insurance Limits Permanent

The Dodd-Frank Wall Street Reform and Consumer Protection Act (H.R. 4173) has gotten a lot of press lately because it represents the biggest reform of Wall Street in quite some time. While the pundits will surely be debating the strengths and weaknesses of the bill, what it went too far on and what it erroneously avoided, one part of the bill touches each and every one of us in a meaningful way – deposit insurance limits.

For years, the FDIC and NCUA insurance limits were set at $100,000. During the economic crisis, this protection limit was raised to $250,000 (in October 2008) to help assuage the fears of many Americans who “ran” on their banks, not realizing in many cases it was the run itself that killed the bank. The limit was raised to $250,000 temporarily, set to expire by 2013, but the Wall Street Reform and Consumer Protection Act, signed on July 21st, 2010, has made this limit permanent.

In fact, the act made the limit retroactive to January 1st, 2008 to the benefit of 9,000 depositors who had more than $100,000 at banks that failed between January and October 2008.

It will be interesting to see how the other parts of the bill play out in the wild.


10 Reasons Why Credit Unions Kick Ass

Fire Police City County Federal Credit UnionCredit unions exist to help its members. Commercial banks exist to enrich their shareholders.

You read that right. Credit unions are unions that exist to help its members. That’s why they often have better interest rates on both loans and deposits. Commercial banks are businesses. Their sole purpose is to figure out how to make more money from its customers (you!). Interest rates are often very low (or nonexistent), loan rates are often competitive, and they always try to sell you new products because you are a customer.

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The Basics of Banking Explained

This is the first edition of our Personal Finance Foundation Series where I discuss the very basics of foundation-type personal finance topics. The topic of this post is Banking.

I was fortunate that my first real experience with banking was with a local credit union. Credit unions are really great about welcoming new members and educating them about everything. Commercials banks, while still cordial, simply don’t offer the same types of services that credit unions do. My mom and I opened a joint banking account a local credit union when I was fourteen and I was excited to even have a laminated blue card with my account number and credit union phone numbers! I still have the card in my desk drawer, I still have the account open, and it was a nice warm and welcoming introduction to the banking world.

That, however, seems to be atypical. Many people are introduced to the banking world either through the nastiness of credit cards or by walking into the antiseptic branch of a major bank. You open an account, direct deposit your paycheck, and feel like a number in a database. There is no education, no explanation, just an assumption that “you’ll figure it out eventually.” Well, unfortunately that isn’t enough because “figuring it out” usually results in you being dinged on fees so let’s start from the basics and go through what banking is.

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New Regulation on Credit Card Unfair Practices Approved

This week, the Federal Reserve, the Office of Thrift Supervision, and the National Credit Union Administration, after receiving a bazillion comments (really 65k+) on Regulation AA (Unfair or Deception Acts or Practices, by financial institutions in connection with consumer credit card accounts and overdraft services for deposit accounts), approved changes that make credit cards more friendly to consumers. While it will be until July 1st, 2010 before the regulations take effect, here’s what will change.

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Ecology of Banking: Credit Unions, Banks & Thrifts

For all intents and purposes to the consumer, there is little difference among thrifts, commercial banks, and credit unions. The financial services they all offer will be similar and you probably don’t even know if the financial institution you’re banking with is a thrift or commercial bank (Washington Mutual is technically a savings and loan and the largest one). In fact, the only real notable difference between thrifts/banks & credit unions has to deal with depository insurance. Thrifts and commercial banks are covered by FDIC, credit unions are covered by NCUA, though both are covered to the same limit of $100,000 per person per financial institution.

Now, for the academics and trivia buffs out there, here’s a little more on their differences.

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What Happens If Your Brokerage Goes Bankrupt?

E-Trade Financial took a huge hit to their stock price today (50% haircut!) on word that they will be taking huge write downs because of their investment in securities backed by home loans. In fact, a Citi Investment Research analyst covering E-Trade downgraded it to a “Sell” from a “Hold,” adding that there’s a 15% chance E-Trade would go bankrupt. So what happens and what can you do if your brokerage goes bankrupt?

First off, you only have any protection if your brokerage has SIPC insurance. SIPC stands for U.S. Securities Investor Protection Corporation and it’s a federally chartered private corporation insuring shareholders against a stock-broker going bankrupt. It’s similar (but not exactly like) to FDIC and NCUA insurance for deposit accounts but covers against bankruptcy and not issues like fraud. If your brokerage is a member of the National Association of Security Dealers (NASD) FINRA (Financial Industry Regulatory Authority), then you will have SIPC insurance because the FINRA requires it. I personally would never use a brokerage that wasn’t in the FINRA because there’s simply no reason for it. The SIPC will cover you for $100,000 cash and $500,000 total (stocks and bonds, not futures, options, currency, etc.) but the brokerage itself may have supplemental insurance that goes beyond that.

So, what do you do? If your brokerage is liquidated, the court-appointed trustee will send you a claim form to fill out and send back. The turn around time is estimated at one to three months according to the SIPC website and that’s if you qualify (most do, there are some exceptions on that) and do it within the deadlines. Lastly, make sure you have good records with your statements so you can get your stuff back in a timely fashion. It’s not unheard of for a brokerage to have bad records so having your own helps the process.

Now with ETrade specifically, they claim to have SIPC coverage and you can confirm this by searching for “E*TRADE Securities LLC” in the SIPC lookup database. The search is very fickle, you have to type the whole name or it won’t find it (Etrade, Etrade financial, etc. all give no result).

Unless I’m missing something, it sounds like those folks who have investments through ETrade are covered by the SIPC. Those investing in ETrade are a different matter… whew, 50% is hard to take.


FDIC Insurance Covers $100K Per Legal Entity Per Bank

The FDIC insurance limit now covers $250,000 per depositor. (subject to ownership structures)

I received the following question after the reader saw my post about FDIC and NCUA deposit insurance:

Jim, I have an FDIC insurance question for you. Bank of America has a 4mo 5.10% high yield cd that I’d like to put my funds in. I have more than 100k, if I split it up between myself, my wife, and then we open one together, will I be covered by the fdic insurance? Thanks,

It sounds like there will be three ownership types on the CDs, you, your wife, and a joint ownership scenario and in that case I believe your CD’s will each be individually covered under FDIC insurance up to $100k.

If you instead purchase three different CDs as an individual and for some reason it were to become insolvent, a maximum of $100k would be insurance regardless of how many accounts you have. It’s the legal ownership that matters and each type gets up to $100k.

Now, take that advice for what it’s worth because I’m not a banker and my opinion is based on what I read off the FDIC website, which I may have inaccurately interpreted.


FDIC and NCUA Deposit Insurance

If you have a bank account, your deposits are insured by the Federal Deposit Insurance Corporation (FDIC). If you have a credit union account, your deposits are insured by the National Credit Union Administration (NCUA). In my article on five accounts you must have (and four you should skip), there was discussion in the comments about the FDIC insurance and since I never really read up on it (other than remembering the insurance for up to $250,000), I did.

Update: The Dodd-Frank Wall Street Reform and Consumer Protection Act (H.R. 4173), signed on July 21st, 2010, has made permanent the insurance limit of $250,000.

Federal Deposit Insurance Corporation (FDIC)
Most banks are going to have this insurance and you can tell that by looking for the following sign:

FDIC Placard

Now, since any sign can be copied or counterfeited (or you can’t find it), you can always look it up through the FDIC bank lookup.

The basic insurance covers you for $100,000 per depositor per insured bank, so having multiple accounts at a single bank will not increase the amount covered. The only way around it is if you have different accounts of different legal ownership, then those are separately counted. The legal ownership types, there are eight, are Single Accounts, Certain Retirement Accounts, Joint Accounts, Revocable Trust Accounts, Irrevocable Trust Accounts, Employee Benefit Plan Accounts, Corporation/ Partnership/ Unincorporated Association Accounts, and Government Accounts. Also, certain retirement accounts are insured up to $250,000 per owner per insured bank.

If you’re itching for more information, the FDIC has a great online pamphlet explaining this all out.

National Credit Union Administration (NCUA)
If you have a credit union account, you’re also covered by a similar program offered by the National Credit Union administration and you can tell if your credit union is insured if you see:

NCUA Placard

In fact, the NCUA regulates and charters credit unions so if you don’t see that placard, then it’s not officially a credit union. To confirm that your credit union is in the NCUA system, you can use their online lookup system.

The rules on the limits are the same, $100,000 per depositor per insured credit union and the limit increases to $250,000 for certain retirement accounts. For more information, you can hit up the NCUA website.

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