Banking: How safe is your cash?

Consumers have suddenly taken great interest in the rules governing federal deposit insurance, said Kathy M. Kristof in the Los Angeles Times. The recent failures of California’s IndyMac Bancorp and two Nevada banks have forced them to. “The Federal Deposit Insurance Corp., which has a $53 billion reserve and full backing of the U.S. Treasury, stands behind deposits of as much as $100,000 per person, per bank.” But anyone with more than $100,000 sitting in a single account should understand the limits of FDIC insurance. “Getting answers on federal deposit insurance can prove vexing in the wake of a failure.” Best to act now and be certain your money is insured.

Depositors have several options for insuring balances higher than $100,000, said Jilian Mincer in The Wall Street Journal. Unfortunately, you can’t simply open a second account at the same bank: The $100,000 per bank, per customer rule would still apply. But “one simple move” for couples is to open a joint account, which will automatically be “insured for up to $200,000.” If you keep cash in a CD, make sure your bank offers the Certificate of Deposit Account Registry Service. CDARS electronically distributes CD deposits that exceed $100,000 to other member banks, thereby guaranteeing that all of the money is insured. About a quarter of all banks belong to the service. Finally, keep in mind that funds in individual retirement accounts may be federally insured for up to $250,000—but only if they are parked in traditional bank products, not stocks, bonds, or mutual funds.

Be leery of any product if it sounds too good to be true, said Jessica Dickler in CNNmoney.com. “Occasionally banks offer special rates on CDs if they need to raise cash.” But that can be a sign of desperation: IndyMac was offering a 4.3 percent annualized rate on a six-month CD before it collapsed. Also be careful not to confuse money-market accounts with money-market funds. Money-market accounts are a bank product that is FDIC insured; money-market funds are mutual funds that invest in liquid securities. Funds may offer a higher yield, but are not FDIC-insured, and they have the potential to actually lose money.

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