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Things To Know About FDIC Insurance

The FDIC published a consumer news article titled "7 Things Seniors (and Everyone Else) Should Know About FDIC Insurance".

FDIC Insurance Limits

The first two things mentioned were the basic $100K FDIC insurance limit (changed to $250K as of October 2008) and how this can be increased by owning accounts in different ownership categories. Another FDIC page gives detailed explanation and examples of ownership categories. An easy way to extend the limit is to open trust accounts with a qualifying beneficiary. An example is a Payable-on-Death (POD) account in which the beneficiary is either the owner's spouse, child, grandchild, parent or sibling. The third tip provided a warning about these ownership categories. A death or divorce can reduce FDIC insurance coverage. This applies to both joint accounts and trust accounts.

FDIC Strength

The next three tips makes it clear that you're safe in a FDIC insured bank if you keep your deposits under the limits. When I've discussed internet banks like EmigrantDirect to friends, they're not only worried about it being an internet bank, but also they're worried about the bank's financial health. Are you giving up security for better rates? Could these banks go under if consumers start defaulting on their debts due to the bursting of the housing bubble? With the US government so high in debt, would it be able to meet its FDIC insurance obligations if a large number of banks go under?

According to this FDIC article, you shouldn't worry. No depositor has lost a single cent of FDIC-insured funds as a result of a failure. Not only the principal is covered but also the accrued interest up to the insurance limit. FDIC also claims that bank failures are rare nowadays due to high financial standards required by FDIC. If there is an unprecedented number of bank failures, the FDIC deposit insurance guarantee is solid with $48 billion in reserves to protect depositors. Additional funds can be raised by collecting more money from insured banks and by borrowing from the US Treasury.

Even if FDIC covers my deposits, won't it be a long and painful process to get paid after a bank failure? The FDIC says no. Most insurance payments are made within a few days, usually by the next business day after the bank is closed.

So if you see a great deposit account deal at a bank that has weak financials, you should consider it a risk-free investment as long as you confirm that the bank is FDIC insured and you keep your deposits under the FDIC insurance limits.

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