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What to Know About Your Accounts

Wednesday, July 16, 2008

Consumers have lots of questions about their bank accounts in light of the troubles at IndyMac and other institutions. Staff writer Nancy Trejos sought some answers.

Q If you have money in a bank, how safe is it?

AIf you have $100,000 or less in your name in any one bank, you have nothing to worry about. The Federal Deposit Insurance Corp., an independent agency of the federal government, will insure up to $100,000 per depositor per insured bank or savings association. That said, there are ways to protect more than $100,000 even if it's all stashed in one bank, depending on the account's ownership category. The most common categories are single accounts, joint accounts, certain retirement accounts and revocable trust accounts. If, for example, you have a single account under your name and a joint account with different names on it, you might be able get insured for more than $100,000. "There's a variety of scenarios that you can come up with to [get] the maximum insurance for that person," said LaJuan Williams-Dickerson, a spokeswoman for the FDIC.

And if you have certain types of retirement accounts, you could get even more insurance. Individual retirement accounts, or IRAs, for instance, are insured up to $250,000 per depositor per insured bank.

Williams-Dickerson said each person's situation is different. She advises any consumer who wants to calculate his or her insurance coverage beyond $100,000 to go to http://www.fdic.gov and click on the Electronic Deposit Insurance Estimator, also known as EDIE. You can also call 1-877-ASK-FDIC.

If that's not reassuring enough, talk to the branch manager at your bank, said Bert Ely, a banking consultant in Alexandria. "Explain the situation and say, 'Here are my accounts, the type of structure they're in. Do I have any exposure?' "

What exactly does the FDIC insure? What does it not insure?

The FDIC insures, up to $100,000, all deposits at insured banks and savings associations. That includes checking, NOW and savings accounts, money-market deposit accounts and certificates of deposit.

The FDIC does not insure the money you invest in stocks, bonds, mutual funds, life insurance policies, annuities or municipal securities, even if you bought these products from an insured institution.

What if you have uninsured funds? What happens when a bank fails? Do you have any hope of recovering that money?

There is hope. Although you are only guaranteed protection on up to $100,000, in past bank failures, many people have been able to recover some, or even all, of their uninsured money, Williams-Dickerson and other experts said.

When a bank closes and the FDIC is appointed as receiver, the agency will sell the institution's assets to pay its creditors and depositors. If there is enough cash to go around, the FDIC will distribute it in the form of dividend payments to depositors. But it can take a while for all the bank's assets to be liquidated. "It can sometimes take up to four or five years," Ely said.

What happens immediately after a bank fails? Even if your money is insured, can you access it if the bank has closed? Will the ATMs work?

Again, every situation is different, but there shouldn't be much disruption to your access to insured cash, banking experts said. Williams-Dickerson pointed out that even after IndyMac Bancorp of Pasadena, Calif., folded on Friday, customers were able to write checks and use their ATM cards. They did not, however, have access to online banking.

"That's one thing the FDIC does, they not only insure funds but they make sure some other bank down the street or the FDIC itself will come in and operate the bank," said Robert F. Klueger, an asset protection attorney in Los Angeles who has written about this issue.

Are there any warning signs that a bank is about to go under?

Historically, these failures have come as a surprise. "Think of it, two weeks ago, nobody had any thought that IndyMac might fold," Klueger said. "Historically, there have been very few warning signs."

The FDIC does, however, keep a list of "problem" banks. There are 90 institutions on that list, up from 76 at the end of 2007, Williams-Dickerson said. She declined to identify them. This year, she said, there have been five bank failures.

"Every bank on our problem list is not in jeopardy of failing," she said. "It's unlikely that the majority of those banks will fail."

What, if anything, can you do now to protect your money?

Knowledge is key, banking experts said. Sit down and make a list of your accounts, which name or names they are under, which ownership category they fall under. Then go to the FDIC's Web site and read the rules. If your situation is more complicated than that, seek professional help. For instance, if you have money in a living trust, maybe you should contact a lawyer, Ely said.

"There are a surprising number of folks who don't understand what their banking arrangements are," he said. "Understand how your accounts are arranged."

Diversification is also important, the experts said. If you have more than $100,000 in any one bank and you're not sure you can work out a structure in which the FDIC could insure more than that, why keep it all in one bank?

"What is the wisdom of having more than $100,000 in one bank in the first place?" Klueger asked. "To have more than $100,000 in one bank is not the most prudent thing in the world."

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