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After the stock crash of 1929 and over a thousand bank failures, President Franklin D. Roosevelt and the Congress created the Federal Deposit Insurance Corporation (FDIC) in 1933.  The purpose was to provide a federal government guarantee of deposits and maintain stability and public confidence in the banking system of the United States.

Is your bank safe?  Is any bank really safe these days in light of the current mortgage meltdown?  Many depositors of IndyMac Bank have learned the hard way that depositing amounts in a U.S. Bank in excess of FDIC insurance can be risky business.  For review, here are the current FDIC insurance limits:

For individuals: Each bank and thrift customer's deposits are insured up to $100,000. That includes checking, savings, money market accounts, certificates of deposit and individual retirement accounts.  There are additional provisions that may raise your coverage up to $250,000 on retirement accounts. 

For couples: All cash in a joint account is insured on a per-person basis up to $100,000. So if Joe and Jane Account Holder have $200,000 in a checking account, the total insurance coverage would be $200,000.

For couples with children: Couples can set up an in-trust or testamentary trust account for their children for a maximum of $600,000 in insurance coverage. The coverage can also apply to the spouse or parent of the account-holder, a grandchild or sibling.

Below is a link to an interesting self test, that proves that most people have no idea how FDIC Insurance really works.  Go ahead and take the test, I think you will be very surprised.

FDIC Insurance Test

My Advice Is To Keep No More Than $100,000 On Deposit At Any One Bank.  Sure, you can try and be clever and combine your accounts with a spouse, open trust accounts, an IRA, and push the FDIC coverage to the limit, but why not just use multiple banks?  I saw an interview yesterday on CNN with a man that lost hundreds of thousands of dollars in IndyMac.  He said that he was counseled by the bank on how to structure his accounts so that they would all be insured.  He had accounts designated for himself, his wife, his various businesses and corporations, etc…  The long and the short of it is that he was told yesterday that he lost more than half of his money due to this advice.  I had to ask myself why he did not just spread his money out among several different banks?  It is also important to remember that the FDIC could run out of money.  According to recent reports, FDIC has only about 52 billion available to pay claims.  Consider the fact that the IndyMac failure alone will cost the FDIC up to 8 billion dollars!  That is 15 percent of the FDIC’s reserves and this is only one bank!  If you believe the talking heads, you should not worry about the FDIC failing since the government will bail them out.  I would not be so sure about that.  There will come a day when the U.S. government runs out of money, and we are closer to that now than ever before.

Why Keep Much Of Your Money In A Bank At All?  There are much better yielding investments that offer much greater safety than bank accounts.  A typical brokerage firm such as Charles Schwab provides coverage of up to $500,000 per account through SIPC on your investments.  I am going to suggest to you that this may be a great time to have someone review your investments and bank holdings.  My recommendation is Robert G. Yetman, who is the President of Stock Market Income Advisers.  You can reach Mr. Yetman at 877–996–5232.  He offers a free initial consultation and has a variety of account options that will keep you safely outside the banking world.   

Federal Credit Unions And The Banking Crisis.  Federal Credit Unions deposits are not insured by the FDIC but by the National Credit Union Share Insurance Fund (NCUSIF).  The coverage is similar in amounts to the FDIC ($100,000 to $250,000 depending on account type).  Established by Congress in 1970 to insure member share accounts at federally insured credit unions, the NCUSIF is managed by NCUA under the direction of the three-person NCUA Board.  I feel no better about Federal Credit Unions than I do about U.S. banks.

Finding Out How Much Trouble Your Bank Is In?  Bank Rate Monitor has a free service that rates banks from 1 to 5 stars based on their financial soundness.  Just out of curiosity, I did a search in Illinois and found 29 banks receiving a safety rating of only one out of five stars!  A similar search in the state of Florida revealed more than 40 banks with the lowest safety rating.

How Easy Is It To Collect On FDIC Insurance?  Although everyone wants to make it sound like getting your money from a failed bank is no big deal, IndyMac customers have been lined up for two days now in a scene reminiscent of the great depression.  I vividly remember stories of people back in the late 80’s having to wait months to be able to get their money out of a failed bank.  So, while the government wants you to just sit back and not worry, my suggestion is that this is a good time to take a close look at where your money is.

Interesting Fact:  The FDIC has only enough money in reserves to cover about 2% of all insured deposits!  How safe does that make you feel?  Let me put this another way; if more than 2% of the banks go under the FDIC will be close behind.

Which Bank Will Be Next?  Read this interesting article

http://www.fool.com/investing/dividends-income/2008/07/15/whos-the-next-indymac.aspx

Agree or disagree, register your comment or advice below.

Helping you make the most of God’s money!

James L. Paris
Editor-In-Chief ChristianMoney.com 
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