Friday, February 29, 2008

Worried About Bank Failures?

Recent economic news has been bleak, and some people are beginning to get nervous about the stability of the banking industry. Even if the worst happens and your bank fails, your deposits will be safe if your bank is insured by the Federal Deposit Insurance Corporation (FDIC). The FDIC was created during the Great Depression in response to thousands of bank failures, and it insures deposits in banks and thrift institutions.

Now may be a good time to confirm that your bank is covered by the FDIC. First, look for the FDIC logo at your local branch. If you don't see it, ask the bank, or go to the FDIC's Web site and click on "Bank Find." Here you'll be able to see if the bank carries this guarantee. Even if you are banking with an internet-only bank, they should be listed on the FDIC site. If you want to see how financially "healthy" the institution is, go to

The FDIC limits the type of banking products it insures, and for what amount. Individual deposits, such as checking, savings, CD's and money market accounts, are insured up to $100,000. Joint accounts can be insured up to $200,000. IRAs and Keoghs can be insured up to $250,000. These retirement accounts are considered separate from your individual bank accounts. What is not insured are investments, such as mutual or stock funds. Nor are the contents of your safe deposit box covered. A general rule of thumb is that deposits are insured, investments are not.

If your bank does go under, it will most likely be purchased by a healthy bank. As a depositor, all this usually means is that there is now a new name on your bank statements. Your checks will still be valid and you can still use your ATM card. Even if the worst happens and there is no buyer for the bank, your deposits are covered. Withing 48 hours, the FDIC will issue a check in the amount of your deposits.

However, there are some things that might change. If you have a CD with the failed bank, the new bank may change its terms (interest rate or length). If that happens and you don't like the new terms, you can cash in the CD without penalty. But if you have a loan with the bank, those rates and terms can not change.

The FDIC maintains that, since 1934, no depositor has lost a penny of insured funds as a result of a bank failure. That's a pretty good track record. But you do need to make sure your bank is covered, so take a few minutes and check. It'll be one less thing for you to worry about in these uncertain economic times.

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