A look at FDIC coverage

The IndyMac Bank failure got me thinking about something most of us take for granted: Federal Deposit Insurance Corporation, usually referred to as FDIC, protection of our bank accounts.

The FDIC is an independent U.S. governmental agency created to protect bank customers against loss of deposits held in an FDIC insured bank or savings association that fails.

According to the FDIC Web site, insured deposits usually are available to customers of a failed bank within a few days. Since the inception of the FDIC in 1933, no depositor has ever lost a penny of insured deposits.

The key phase is "insured deposits," which means the amount meets the agency's limits. The amount $100,000 is tossed about, but there are some specifics that need to be noted, primarily in regard to the various account categories.

Single accounts: For accounts owned by one person and titled only in that person's name, the money in all such solo accounts counts toward the $100,000 insurance limit. That means if you have a checking account and a CD at the same FDIC-insured bank, both account amounts are added together and that total is insured up to $100,000.

Remember, it's per person and per bank. So if you have $100,000 in ABC Bank and $100,000 in XYZ Bank and both FDIC-insured institutions fail, each account is fully recoverable.

Joint accounts: These accounts are owned by two or more people. If the owners have equal rights to withdraw money from a joint account, each person’s shares of all joint accounts at the same insured bank are added together and the total is insured up to $100,000 for each owner.

For a couple with a joint checking account and a joint savings account at the same insured bank, like the hubby and I have, each co-owner's shares of the two accounts are added together and insured up to $100,000, providing up to $200,000 in coverage for the couple's joint accounts.

For example, the hubby and I have a hypothetical $200,000 CD at an insured bank with equal access to the account funds. So the hubby has $100,000 and I have the other $100,000 and we're OK if our bank fails, since we each get $100,000 of coverage.

If, however, our CD earnings bumped our account total up to $220,000 -- since we're being hypothetical, we're getting a great interest rate on this CD! -- that would put each of us $10,000 over the insurance limit.

Retirement account added coverage: While the basic insurance amount is $100,000 per depositor per insured bank, retirement accounts get added coverage. IRAs are insured up to $250,000 per depositor per insured bank.

Additional assets uncovered: But other assets aren't usually protected by the FDIC.

As the fine print on bank literature and Web sites notes, the FDIC does not insure money you invest in stocks, bonds, mutual funds, life insurance policies, annuities, or municipal securities, even if you purchased these products from an FDIC-insured bank.

Calculate your FDIC coverage: You can calculate your bank insurance coverage at EDIE, the FDIC's online Electronic Deposit Insurance Estimator.

You also can get download a copy of Your Insured Deposits: FDIC's Guide to Deposit Insurance Coverage, which has details on insured account ownership categories, or you can order a copy by calling toll-free 1-877-275-3342.

Bad banks: IndyMac is the fifth bank to fail this year. Between 2005 and 2007, only three banks failed.

However, that escalated failure pace is not a reason for worry, according to the head of the FDIC.

"All bank depositors should understand that their insured deposits are safe," said FDIC Chairman Sheila Bair (reported by Reuters). "The chance that your own bank will be taken over by the FDIC is extremely remote. And if that does happen, you will continue to have virtually uninterrupted access to your insured deposits."

According to FDIC records, in the past 15 years, the federal bank insurance agency has taken over 127 banks with combined assets of $22 billion.

The Pasadena, Calif.-based IndyMac, which was seized Friday, July 11, by regulators after a bank run in which customers withdrew $1.3 billion of deposits over 11 business days, will reopen Monday. It will have a new charter and a new name, IndyMac Federal Bank.

Still in a movie mode: Keeping with today's earlier post about accountant movies, the best bank failure flick is, obviously, It's a Wonderful Life.

If only real life were as wonderful as the reel life in some of these great old films.

But, alas, there aren't many bankers like George Bailey or towns like Bedford Falls anymore.

Comments

[Anthony Dean]

Indy Mac, Fannie Mae, Freddie Mac Meltdown

IndyMac's woes are a reflection of the financial industry's persistent troubles from the mortgage meltdown and the resulting credit crisis. Big Wall Street firms continue to record billions of dollars in losses on mortgage-related debt.
The stocks of government-sponsored mortgage giants Fannie Mae and Freddie Mac stocks dropped significantly after an analyst said they could be forced to raise a total of $75 billion in fresh capital.Of the independent mortgage lenders that have graced the Southern California coastal communities, the few that remain are struggling with rising defaults and shrinking capital are Downey Financial Corp. in Newport Beach and FirstFed Financial Corp in Los Angeles.
IndyMac was started in 1985 by Angelo R. Mozilo and David Loeb, who together had founded Countrywide Financial Corp., and grew to be the second-largest independent mortgage lender after Calabasas-based Countrywide, which was acquired by Bank of America last week.The Pasadena-based lender had many Mortgage Broker relationships and was the outright leader in "alt-A" mortgages, those made to people with decent credit on terms that fell short of prime mortgage standards. Many borrowers, for example, were allowed to state their income without proof or do what they call ‘NINA loans” ( No Income and No Asset verification). “It’s amazing to me that so many were able to get Million dollar home loans without ANY documentation” what would one expect? Many of the loans were "pay option" adjustable-rate loans, or "option ARMs," which allowed a homeowner to pay so little each month that the loan balance grew instead of shrinking.
IndyMac also made home-equity loans and sub-prime mortgages -- types of loans that have been beaten up badly by defaults. While some were getting 30 year fixed rates below 6.00% some of these lenders figured out how to place good credit borrowers in risky ARM’s paying over 8.00% and differing massive amounts of interest behind the scenes. Critics contend that IndyMac and other lenders, backed by Wall Street firms that bought loans to create mortgage bonds, brought about their own downfall by encouraging loan agents and independent brokers to promote unconventional financing features to get borrowers into loans they ultimately couldn't afford and are now facing default or foreclosure if they don’t get help.
It doesn’t seem fair that home loans are developed that cause hard working Americans to lose their homes when they should be able to trust Brokers, Bankers and major Lenders. “We are hoping to create a “win-win” situation for the lender and borrower and modify these loans, I don’t think the Lenders want to end up in court; nor do the home owners want to lose their home”, says Steven C. Feldman, head Attorney at The Feldman Law Center.
These days most lenders don’t want to talk to clients until they’re defaulting, contrary to what you might here about pressure from the administration to modify these subprime mortgages. We know there’s RESPA and TILA violations in these files even the lender who holds the paper may not be aware of, but if they bought the loan they are responsible for it and should be held accountable. A person should not have to destroy their credit to get their loan modified so they can afford their payment. That’s why we’re taking these cases and helping homeowners get drastic principal and interest rate reductions on these type of loans, say’s Feldman.
If you are in a “Option ARM” home loan with Countrywide Home Loans, Indymac Bank, GMAC, EMC, Wachovia, World Savings Bank, Downey Savings, Home Savings of America, First Federal Bank of California or any other Lender you should get help before your loan recasts or differ any more of your homes equity. Contacting a Attorney to handle your negotiation with the bank is a good idea. The Feldman Law Center is one of a few Law Offices in California that can negotiate home loans in all 50 states. I heard about them on KNX radio 1070 and you can find them at www.FeldmanLawCenter.com or call 800-730-0545

[Jeremy Ross]

Good Stuff! From what I found, there are two ways to spread out CD deposits to get around the $100k per titled account holder and receive one statement, etc. like you would at a single bank. CDARS (www.cdars.com) and MaxSafe (www.maxsafeaccount.com) seem to maximize FDIC insurance by allocating amounts to different FDIC-insured banks, but hold it in the one “title” that you want.