FDIC Insured Bank Account How to Protect Yourself During Credit Crunch

As the credit crunch bites down hard, it is not only the people in debt that are hit hard. As the situation of the international markets reaches new lows several large banks have been run out of business, several credit companies have folded and many independent lenders have mysteriously disappeared last seen heading to the Lesser Antilles.

The credit crunch has seen interest rates rise, businesses fold, jobs disappear and prices skyrocket. As debt becomes a risky business the banks are becoming very concerned about their position, businesses are buckling down the hatches and your average consumer is getting screwed left right and center!

The rising cost of living mixed with the high interest rates on debt has seen many mortgages fold and businesses go under in the USA and UK as people struggle to keep up with debt, especially those who have recently taken out a mortgage and seen their monthly payments increase by a staggering amount.

This has left a huge financial burden on your average saver, if a bank goes out of business, have you lost your money? is your money safe? and is your money federally protected?

The answer to all three of these rather important questions is unfortunately a rather unsatisfying ‘Maybe.’

When answering these questions you have to check first of all where your money is. To claim federally insured compensation for loss of savings your bank must first be insured by the Federal Deposit Insurance Corporation (FDIC). The FDIC is a government created corporation that will protect consumer savings and some other credit transactions up to $250,000 per person per bank. This limit may or may not be renewed on the 31st Dec 2008. It is possible that it will be dropped back to $100,000 as it was before the credit crunch hit the USA, but it is unlikely.

So what exactly does the FDIC cover if you have been using an FDIC insured bank?

Well the FDIC will cover you for up to $250,000 per bank (So if you have $500,000 split between two different banks equally you will be insured for all of it) on the following products.

  • Savings deposits
  • Checking deposits
  • Deposits in NOW accounts
  • Christmas club accounts
  • Certificates of deposit
  • Cashiers’ checks
  • Officers’ checks
  • Expense checks
  • Loan disbursement checks
  • Interest checks
  • Outstanding drafts
  • Negotiable instruments and money orders drawn on the institution
  • Certified checks, letters of credit and travellers checks, for which an insured depository institution is primarily liable, also are insured when issued in exchange for money or its equivalent, or for a charge against a deposit account

A question that often gets asked is whether a person’s personal pension is covered by the FDIC. Unfortunately this is where things get pretty complicated. A good indicator though is the type of pension. If the pension deals in mutual funds or stock & share investments then your pension will not be protected, however if it is left in a savings account it should be covered in most circumstances. Either way it is absolutely imperative that you check with your bank as to whether or not your bank has been federally covered by the FDIC insurance. You can search online instantly to check your bank is insured by the FDIC at http://www4.fdic.gov/idasp/main_bankfind.asp

Of course what you have actually got covered by the FDIC is important, but not quite as important as what is not covered. If you own mutual funds, stock and shares or similar risk based savings where a loss could be incurred it is very unlikely that you would be covered, infact mutual funds, annuities, life insurance policies, stocks and bonds are all specifically excluded from the FDIC’s insurance of peoples accounts.

If however you do own stocks and shares in a company but your broker or bank goes into liquidation you CAN contact the Securities Investors Protection Corporation. The SIPC is an organisation which will help you reclaim the ownership certificates of any company you have investment in, whether it be through direct purchase or through an investment fund. This will not insure you against loss in value, but will cover the recovery of up to $500,000 in investments including up to $100,000 cash. This is only for the current market value of your investments!

Confusion tends to arise about how you are covered by the FDIC with family members with joint accounts. Just to clear this up right now the coverage of FDIC is Per Person Per Bank! This means that if you have a joint account with a father a mother and two children all signed into it legally (All must be joint account holders registered as such with the FDIC insured bank) then you will have $1,000,000 of FDIC Insurance cover!

This also covers trust accounts, so if you have a trust account with two parents and two children payable to the beneficiaries on the parents death you are covered by the FDIC for the full $1,000,000.

All in all it is recommended by the financial sector that you bank solely with companies that have FDIC insurance for peace of mind during our turbulent economic climate. The credit crunch has hit both banks and customers hard as interest rates skyrocket and lending is scrutinized more carefully. By protecting your lifetime investments you are ensuring that unpredictable banking liquidations do not affect your hard earned savings.

If you ensure you have your savings in an FDIC insured bank account you have ensured that your money remains safe, and all you have to worry about then during the oh so famous credit crunch is your mortgage, not much you can do about that one though.


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