Dunnan on Dollars

  Personal Finance Tips from Nancy Dunnan

How Safe...
Is Your Bank Account?

September 19, 2008 - The shaky stock market may have propelled you to put some of your money into a bank savings account or certificate of deposit. Not a bad idea, although long term most stocks provide better returns.

However, even banks are not 100% safe, as you probably know.

When a bank fails...

Most banks cover deposits with federal insurance provided the Federal Deposit Insurance Corp. (FDIC). The insurance cap is typically $100,000, with some exceptions which are explained below. But even if your money is not fully insured, you might get it back if your bank fails, although this is not guaranteed.

A live example...

Let's look at what happened when federal regulators closed First Priority Bank in Bradenton, FL on August 1st.

The FDIC, the receiver of the failed bank, arranged for another bank, in this case SunTrust Bank, to assume the insured deposits of the failed bank. That enabled all of the branches of the failed First Priority Bank to reopen (within a day or so of the closing) as branches of SunTrust.

Thus, insured First Priority depositors automatically became insured SunTrust depositors.

However, the failed bank had about 840 accounts that exceeded the federal insurance cap of $100,000. Those accounts were worth about $13 million and people holding them had to wait to gain access to their money. That's because the uninsured accounts were credited over time as the FDIC sold them to healthy banks.

FDIC bank account coverage...

Obviously it's best to have only $100,000 in one bank. But there are some exceptions.

1. In addition to an individual account which is insured up to $100,000, you can also have a joint account in which up to $200,000 is insured. Your joint account can be with a spouse, a child or anyone else. 
2. In addition to $100,000 in an individual account and $200,000 in a joint account, up to $250,000 in a regular or Roth IRA account is federally insured.
   Therefore, if your bank fails and you have three different types of accounts (up to $100,000/individual, up to $200,000/joint and up to $250,000/IRA), all $550,000 will be FDIC-insured.

When FDIC regulators determine a bank can't meet its obligations and declare it insolvent, the FDIC temporarily takes over the bank, removing the in-place management.

Although the FDIC runs the bank, it does so only for a short time, while auctioning off its assets -- for the best price -- to another bank. This change in ownership usually takes place over a weekend. (That was the case with the Florida bank described above.)

If the FDIC cannot find a bank to buy the insolvent institution's assets, then the FDIC mails checks to those account holders who are within the federal insurance limits. Interest is paid right up until the night the bank is closed.

About your account...

The FDIC web site ( www.fdic.gov ) has a calculator that will tell you how much of your money at any one bank is insured.

And, if you click on "Failed Banks" (on the right on the home page) you'll find a list going back to October 1, 2000. The latest failed bank listed is Silver State Bank of Henderson, NV which closed on September 5. Prior to that, Integrity Bank in Alpharetta, GA closed on August 29 and on August 22, Columbian Bank & Trust of Topeka, KS closed.

The site has information on the acquiring bank and what to do if you have a car or business loan with a failed bank, a mortgage, checking or savings account or CDs. There's also advice about handling the direct deposit of Social Security checks.

Finally, the "Failed Bank" pages explain the steps you must take and who to contact if you have money on deposit that is not FDIC insured.  Absolute must reading!

- Nancy Dunnan

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If you want to suggest a column topic for Nancy, drop her a line.

Like what Nancy has to say? you might be interested in the new edition of her book:
How To Invest $50 To $5,000: The Small Investor's Step By Step Plan for Low-Risk, High-Value Investing