This seems to be the right subject for my first real post with all the talk about Indy Mac failing I figured I'd go over the FDIC.
As most people know, the FDIC insures 100% of your funds in a bank (not a Credit Union) up to $100,000. With the stock market declining, real estate declining and banks failing, you may be wondering whether you should pull your money out of a bank and keep it under the mattress and hope there's not a fire. There are far better options. If your main goal is to protect the principal, you still need to hedge against inflation. Although inflation hasn't been a huge problem in the past few years, it's most likely going to be in the future. There are a few options here:
1. Split up your money in different banks. Although this may be hectic and more difficult to keep track of your money, it will be insured.
2. Re-title your accounts. If you have $150K in one account with just your name on it, split the account into two different accounts each being less than $100K and Re-Title the accounts. You can have on that's a joint with your spouse, or have another with yourself and a child named as a beneficiary. Each
account is insured up to $100K, so as long as they're differently titled accounts, they will be protected. Talk to a banker more about this.
3. The newest way to Beat the $100K FDIC limit is called Certificate of Deposit Account Registry Service or
CDARS, pronounced "cedars." This is a way to take all of your money, deposit it and track it through one bank, yet have all of it, up to $50 million (should you be so fortunate) in one place. I will be explaining this further in a future blog.
4. If your money is in a retirement account (An IRA and/or Keogh account) you're protected up to $250,000 instead of $100,000. Now, keep in mind that this is protected against the institution failing, not against a loss. Also, any investments in stocks, bonds or annuities will NOT be covered, only bank bought investments such as
CD's.
There's an urban myth that if a bank goes under and the FDIC has to insure your account, that you won't get the money back for months. This is untrue. Most people will have uninterrupted access to their money up to the first $100K.
IndyMac customers could still
withdraw money from
ATM's and write checks this past weekend, and any previously written checks cleared (assuming they were in good standing).
As of March 31 the FDIC had $53 billion dollars and bailing out
IndyMac is expected to cost between $4 - $8 billion. By law, the FDIC has to have $1.15 for every $100 of insured deposits.
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