I went to the bank last Friday to deposit a check and I noticed a couple of the tellers huddling off to the side. The branch manager was walking back and forth between the customer and the tellers and her office, where apparently she was on the phone with someone with more authority than she had. I don’t know all the details, but from what I could gather while waiting in line, the customer wanted to withdraw the contents of his account.
I’m not privy to the details of the transaction and perhaps I shouldn’t have even been paying attention. But my impression was that the customer was withdrawing his cash and closing his account because he was scared of the current economic situation.
But there was no need to worry. The bank was a member of the FDIC and his money was safe.
FDIC Insurance has you covered
The Federal Deposit Insurance Corporation (FDIC) was founded during the Great Depression to keep people form making runs on bank deposits. FDIC insurance protects depositors against the loss of their funds if a bank fails. FDIC insurance is backed by the full faith and credit of the United States government, and since it was established, no depositor has ever lost any FDIC-insured funds.
FDIC insurance covers funds in deposit accounts, including checking and savings accounts, money market deposit accounts and certificates of deposit (CDs). FDIC insurance does not cover other financial products and services that insured banks may offer, such as stocks, bonds, mutual fund shares, life insurance policies, annuities or municipal securities.
FDIC coverage is automatic. Coverage is automatic up to the limits and the banks pay the insurance premiums, not the customers.
New FDIC Insurance Limits
The new FDIC limits took effect October 3rd, 2008 and last through December 31st, 2009, unless they are extended by another bill. The new limit is $250,000 and covers single accounts, IRAs and other retirement accounts, and trust accounts. Joint accounts are covered $250,000 per co-owner. For example, my wife and I could theoretically have $1million in FDIC insured funds in one bank – each with an individual account and a joint account.
To guarantee your entire account is covered, just keep your deposits under the limit. If you need additional coverage, open another account with the same bank, or another bank.
Don’t make a run on the bank – your money is safe
Withdrawing your money out of fear is the wrong thing to do. What the customer may not have realized is that his money was safe and he could be setting up himself or the bank for failure. When you withdraw your money, not only are you not earning interest, but you have no protection for your money. You have no recourse if your money is lost, stolen, or destroyed. Withdrawing money from the banks also reduces their amount of deposited funds. This limits the amount of money banks are able to lend, which is how they stay in business. One person withdrawing their funds won’t hurt a bank, but hundreds of account closures in a short period can.
Is your bank covered? Most banks in the US are covered by the FDIC, and if yours isn’t covered, I would recommend finding one that is. To find out if your bank is covered, contact your bank or use the FDIC insured bank search.