A very important benefit of banks and credit unions is safety. When we deposit our money into a bank account, we can feel confident that the money is safe. We can get higher returns in stocks, bonds and other investments, but they have risk. Bank accounts should be essentially risk free, but how risk free is our money in a bank account? Is there any chance that some or all of our money could disappear?
This is the first of a series of articles in which I’ll review this issue of safety.
Safety of Your Money When Your Bank Fails
The first potential risk is the soundness of the bank or credit union. If the institution goes bankrupt, will our money disappear? Most DA readers should know that we’re protected by federal deposit insurance. The FDIC covers bank accounts and the NCUA covers credit union accounts. The two things depositors need to ensure is that their bank or credit union is federally insured and that their deposits remain under the coverage limits. How can you be sure your bank or credit union is federally insured? And how to ensure your deposits are under the coverage limits? I"ll cover these questions in the second article.
Safety of Your Money When There’s Employee Theft
It’s important to understand that the FDIC and NCUA deposit insurance only takes effect when the institution fails. Another risk is loss of your money due to employee theft. Here’s what the FDIC says about deposit insurance and theft:
situations not insured by the FDIC
Robberies and Other Thefts - Stolen funds may be covered by what's called a banker's blanket bond, which is a multi-purpose insurance policy a bank purchases to protect itself from fire, flood, earthquake, robbery, defalcation, embezzlement and other causes of disappearing funds. In any event, an occurrence such as a fire or bank robbery may result in a loss to the bank but should not result in a loss to the bank's customers.
As described above, a bank could be hit by theft, but "a loss to the bank should not result in a loss to the bank’s customers." The words "should not" suggest that cases could arise in which a bank customer may experience a loss. In fact, a case did occur in which customers had to file a lawsuit against a bank to get back their deposits. I’ll review this case and this theft risk in the third article.
Safety of Your Money When There’s Electronic Fraud
Electronic fraud has become more of a concern due to all of the banks that have been hit by hack attacks. Most of those attacks haven’t directly affected customer bank accounts, but these incidents show that sophisticated hackers are out there looking for ways to break in and steal money. Regulations exist that protect customers. In the fourth article I"ll review this regulation and describe what bank customers must do to be protected.
Safety of Your Money for Business Accounts
This issue of electronic fraud is even a more serious issue for businesses than for consumers since there are fewer regulations that protect businesses. There have been several cases in which businesses have filed lawsuits against banks in an attempt to get back money that was lost in electronic fraud. I’ll review these cases and the risk that businesses face in the fifth article.