Is Your Money Safe In The Bank?
Jul 17th, 2008 by Jennifer Lynn
Shelter Your Financial Savings and Eliminate Exposure to Risk
I pulled the bulk of my money out of my savings account months ago when interest rates started plummeting. My goal right now is actually two-fold; to preserve my current savings through diversification (such as foreign currency and commodity investments), and to aggressively pay down my debt. There is simply no incentive for me to continue putting money away in a bank account with current deflated interest rates and rampant inflation. I don’t know about others, but I prefer to maintain the purchasing power of my hard earned savings. Sigh. At least this tremulous financial climate gives me an excellent incentive to focus on paying off my debt this year in its entirety – and to stay out of debt forever.
And at least I’m faring better than the average IndyMac customer, who was blindsided last week when their bank pooped out, and where some had a rather rude awakening upon realizing their assumption that all deposits were insured was terribly misguided.
Is money safe in the bank? Generally, yes it is. There however exist federal guidelines to help shelter bank deposits from unnecessary risk. I’m rather astonished folks with such large balances of savings weren’t aware of this.
FDIC insurance –
Even though this information can be found with a tiny bit of research, I’ll try to provide the general gist here. The Federal Deposit Insurance Corporation (FDIC) fully insures individual bank accounts up to $100,000 per depositor, and up to $250,000 for certain retirement accounts, such as an Individual Retirement Account (IRA). It does not, however, cover investments in bonds, stocks, mutual funds, annuities, life-insurance policies or municipal securities.
Since each account is insured separately, coverage beyond the $100,000 threshold can be increased by opening an account at a separate bank – (it has to be a different bank though and not another branch of the same bank, obviously.) Assets can sometimes be spread out between different account types at the same branch as well so if you’re unsure, it’s always best to consult your financial institution for strategies to ensure maximum insurance coverage.
You can also use this form to verify if your banking institution is currently FDIC insured: FDIC Bank Find
(Recommended Reading: FDIC Website)
Indymac bank failure
As a flux of IndyMac customers are now unfortunately discovering, exposure to risk is greatly increased when an account exceeds $100,000 and the bank flops. The FDIC will immediately step in to liquidate and disseminate the bank’s remaining assets, but you may have the unpleasant experience of receiving but a mite of your balance again.
My heart really goes out to the hapless people in this video clip as they waited outside IndyMac this week to withdraw funds.
(Oops, I had to remove the embedded video due to a coding issue with FireFox web browser. To view a clip of the video, click the link below)
IndyMac Bank Run Confrontation in California
One man ‘couldn’t find his balance’ since the machines weren’t operating; he had no idea what his current bank balance might be or how to withdraw money for his pending bills. My local news showed a distraught customer who claimed to have over $320,000 in a savings account and was mendaciously led to believe the entire balance was insured due to three names being on the account.
This only reinforces my antipathy for blindly entrusting others with hard earned savings, and why it’s prudent to understand all the nitty gritty details involved in any type of investment. Banks are usually safe havens, but even anchorable banks can fail.
I’m shocked that people weren’t more cognizant of the FDIC guidelines and hopefully this IndyMac incident will bring awareness to help others avoid similar blunders.
~†~ Baby Steps Are Key ~†~ No one will care about your hard earned money as much as you do. That’s why it’s imperative to always have a solid understanding of the details on your investments and all the risks involved.
=^..^=
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I used to work at a law office and many clients would have accounts at several different banks, due to the $100k FDIC insurance limit. This is just a real-life example of why they did that.
I enjoyed your post. You made this news story more personal.
Great post. I’ve never really paid attention to the FDIC guidelines…probably because I’ve never had anywhere near $100k in the bank. It’s nice knowing that I’ll be educated when I finally do though
In Canada the Canadian Deposit Insurance Corporation CDIC also insures all deposits upto $100,000.
Great post. When I was a student and I had “extra” money I would always go to my local coin store and buy generic silver rounds. They would sell them to me for 10 cents above market price and buy them for 10 cents below market price. I bought most of mine when silver was 4.50 to 5, back in 1996. By the time I left school I had over 400 ounces and silver was about $6 each. I kept most of them and in 2005 I sold most for $14 each. In march of 2008 I sold all but 5 of them when silver hit $19.50.
It is a great thing cause it is fun to play with. I gave a few away as tips at nice restaurants. I also sold many of them on ebay for much more than the coin store would give me. The best thing is that it is inflation proof, the more inflation there is the higher it goes. Also you can sell it any day of the week, just walk in the store and they give you cash on the spot.
Try this, you may like it.
Jason Dragon
http://blog.capitalactive.com/