Dedicated to Deposits: Deals, Data, and Discussion

Is Your Money Safe from Financial Institution Failure? FDIC and NCUA


Is Your Money Safe from Financial Institution Failure? FDIC and NCUA

Before putting your hard earned cash in any deposit account, it is a good idea to consider whether or not the financial institution is covered by some sort insurance that guarantees that your money will not be lost to you if the institution should fail. There are organizations that cover banks and credit unions in the event of a failure, ensuring that you will have access to your money – even if the financial institution goes down. For most financial institutions, this means either FDIC insurance, or insurance obtained by members of the NCUA.

FDIC

The Federal Deposit Insurance Corporation (FDIC) was created in 1933, during the Great Depression. This government agency was created in response to the fact that many people lost their life savings as banks failed during this trying economic time. According to the FDIC web site, it does not receive appropriations from Congress, but instead receives funding from the premiums that banks pay to be insured. The FDIC claims that no depositor has lost even one cent of insured funds as a result of bank failure.

On top of insuring depositor funds, the FDIC also serves as a regulator for some 4,900 banks, examining how they comply with consumer protection laws. It is worth noting that the FDIC is the primary regulator for banks that do not join the Federal Reserve System. For banks that are a part of the Federal Reserve System, the FDIC serves in a position of a backup supervisor, rather than the primary regulator.

Five Presidential appointees serve on the Board of Directors for the FDIC. These appointees have to be confirmed by the Senate, and no more than three board members can be from the same political party. There are six regional offices of the FDIC, and there are also temporary satellite offices.

FDIC insurance covers depositor accounts up to $250,000, per depositor, per institution, in each ownership category. This means that if you have two bank accounts at the same bank, each with $250,000, if the accounts are in the same ownership category, only one of those accounts is actually covered. If you are looking to have better coverage for your cash, you will need to strategize about what sort of accounts your money is in. Ownership categories include single accounts, joint accounts, certain retirement accounts (find out more about FDIC insured retirement accounts), revocable trust accounts. You can also consider putting some of your money at different banks in order to avoid the problem of exceeding the $250,000 coverage limit at one institution. You can use the FDIC’s Electronic Deposit Insurance Estimator (EDIE) tool to help you determine which of your accounts are covered.

Realize, too, that some products offered at your bank may not be covered by FDIC insurance. Securities are not covered, and neither are safe deposit boxes, annuities and insurance products. Make sure you find out for sure which products are covered before you commit your money to an account.

NCUA

Like the FDIC, the National Credit Union Administration (NCUA) is an independent federal agency. However, while the FDIC is concerned primarily with banks, the NCUA is the agency responsible for overseeing credit unions. The NCUA is overseen by three-person board. As with the FDIC, board members are Presidential appointees confirmed by the Senate. Only two board members can be from the same political party, with members serving staggered six year terms.

The NCUA was created in 1970. The agency oversees the National Credit Union Share Insurance Fund, which was also created in 1970. It is the NCUSIF that actually provides the funds for insuring depositor money at credit unions. In order to ensure that the NCUSIF has the capital needed to cover its obligations, 1985 saw the institution of a requirement for covered credit unions to deposit 1% of their shares in the fund. According to the NCUA web site, covered credit unions are only required to pay premiums when the NCUSIF drops below a 1.25% equity ratio.

Credit unions have some different membership requirements when it comes to those who can deposit money at these institutions, but overall coverage is quite similar to what you see at the FDIC. Credit unions can be chartered by states or the federal government. Federally chartered credit unions are automatically NCUA members, and insured. The per limit, per depositor in each ownership category is $250,000. The same restrictions apply to coverage of securities, insurance products and annuities that are seen with FDIC insurance. If you have large amounts of money, you will have to make a plan to ensure that you have adequate coverage to protect all of your accounts.

Is Your Institution Covered?

More than likely, your bank or credit union is covered by the FDIC or NCUA. However, this is not automatic. Some banks and credit unions decide not to get federal coverage for deposit accounts. In some cases, these institutions get private insurance meant to protect deposits. Some banks have private insurance coverage to cover safe deposit boxes, as well as theft, neither of which is covered by the FDIC. About 5% of state chartered credit unions are private insured against failure, rather than making use of NCUA deposit insurance.

Before you put your money in a financial institution, double check the measures taken to protect your deposits, and make sure they are in line with what you think are adequate measures for your protection. Also, make sure you understand the coverage rules, and create a strategy to ensure that as much of your money as possible is protected.



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Comments
10 Comments.
Comment #1 by Anonymous posted on
Anonymous
This totally does not answer the titular question.

20
Comment #2 by scottj posted on
scottj
I have 100% confidence in FDIC/NCUA. The second they have a hiccup we would see a run on banks that would dwarf 1929 . They know this and will do anything they have to to make sure people feel confident keeping money  in bank/CU's

7
Comment #3 by Anonymous posted on
Anonymous
It really doesn't matter if deposits are insured. What matters is if you have access to your deposits. What would you do if you had no access to your bank account for three days? What about a full week? What about a month or more? Thinking that can't or won't happen is just living in a cartoon. The money is insured. There is no insurance of when you could access it or what it would be worth when you finally do.

4
Comment #5 by Bancxman (anonymous) posted on
Bancxman
People forget that, in the late 1980s, both the FDIC and FSLIC deposit insurance funds went broke. The FDIC received a bailout from Congress and took over the FSLIC's former responsibility for insuring thrits. No depositor lost a dime. For the reasons Scottj notes, look for a repeat bailout from Congress if one becomes necessary. In addition, no insured depositor has ever waited weeks or months to receive an insurance check.  In most cases, the FDIC immediately transfers all insured deposit to another insured institution. The only exception I have seen is when a bank is closed without warning. This is usually because of some type of fraud. Since the FDIC then has to play catch up, I've seen it   take up to three days for insured deposits to become available. However, this involved two bank failures that  occurred over 25 years ago. So, unless you're really unlucky, this will never happen to you.

5
Comment #6 by cactus posted on
cactus
Whie banks were rescued at taxpayer expense, credit unions have not taken a nickel from the government.

Just because someone sets up a company with "Bank" or "Credit Union" in the name doesn't mean that they are a real, regulated, insured institution.

To check your bank at the FDIC site, go to http://www2.fdic.gov/idasp/main_bankfind.asp

To check your credit union at the NCUA site, go to http://cuonline.ncua.gov/CreditUnionOnline/CU/FindCreditUnions.aspx

2
Comment #7 by cactus posted on
cactus
This article should point to Ken's excellent posts that give the details about what happens when a bank or credit union is put into conservatorship, sold to another institution, or closed.

CBS has an excellent "60 Minutes" episode where they followed an FDIC team. It shows how an FDIC (or NCUA) team seizes a bank at closing time on Friday afternoon and reopens it under new ownership on Monday morning. http://www.cbsnews.com/stories/2009/03/06/60minutes/main4848047.shtml

 

3
Comment #8 by Anonymous posted on
Anonymous
Misinformation Miranda had been secretely replaced with No Information Miranda....

11
Comment #9 by Anonymous posted on
Anonymous
One thing we learned living years ago in a "hurricane zone" was not to leave everything in a local bank. When a city is devastated by a hurricane or other weather catastrophe, the banks close down for days or however long it takes to clean or fix up the damage and no one can get access to their funds even in their safe boxes.  This happened to us but thankfully when I first saw on the news the calamity was heading in our direction, the first thing I did was get to our bank before leaving town.  Many things can cause customers not to have access to funds in their banks and some you don't think of until it is too late.

2
Comment #10 by Anonymous posted on
Anonymous
Suppose in a credit union you have $250K in a Traditional IRA and $10K in a Roth IRA which is $260K total and would be over the $250K NCUA insured limit.  The credit union goes bankrupt.  From which IRA do you lose the $10K that is not covered by insurance? Do you lose proportional amounts from both IRA's or can you preferably choose to forfeit the $10K out of the traditional IRA?

1
Comment #11 by lou posted on
lou
They probably give you the option of choosing which one to take the hit.

1