| Editor's
Note: On Oct. 3, 2008, Congress raised the FDIC
insurance amount to $250,000. This change will be
in effect until Dec. 31, 2009, unless it is renewed.
Perhaps one of the most ubiquitous signs in the
banking world is "Member FDIC." Ever wonder what it means?
The Federal
Deposit Insurance Corp. insures deposits of
virtually all U.S. banks and savings and loan institutions
up to $100,000 per customer (individual or business)
in the event of a bank failure. Retirement accounts
are insured up to $250,000.
Here is what is covered by FDIC insurance:
| • |
Checking accounts,
Negotiable Order of Withdrawal, also called NOW accounts (checking
accounts that earn interest) and money market deposit accounts,
also called MMDAs (savings accounts that allow a limited number
of checks to be written each month.) |
| • |
Savings accounts
that you can add to or withdraw from at any time. |
| • |
Certificates
of deposit, or CDs, which generally require you to keep funds
in the account for a set period of time. |
Here is what is not covered by FDIC insurance:
| • |
Stocks, bonds
and mutual funds. |
| • |
Investments backed
by the U.S. government, such as Treasury securities and savings
bonds. |
| • |
The contents
of safe-deposit boxes. Even though the word "deposit"
appears in the name, under federal law a safe-deposit box is
not a deposit account -- it's a well-secured storage space rented
by an institution to a customer. If you are concerned about
the safety or replacement of items you put into a safe-deposit
box, ask your insurance agent whether your homeowners or renter's
insurance policy covers your safe-deposit box against damage
or theft. |
| • |
Losses due to
theft or fraud at the institution. These situations are often
covered by special insurance policies that banking institutions
buy from private insurance companies. |
| • |
Errors made in
your accounts. In these situations, there may be remedies for
consumers under state contract law, the Uniform Commercial Code
and some federal regulations, depending on the type of transaction. |
| • |
Insurance and
annuity products, such as life, auto and homeowner's insurance. |
Two products that are easy to confuse because they
have similar names are money market deposit accounts
and money market mutual funds. MMDAs are deposits and, as mentioned,
are covered by FDIC insurance. Money market mutual funds are funds
that invest primarily in short-term corporate bonds or government
securities and are not deposit accounts insured by the FDIC.
While the basic federal insurance
amount is $100,000 or $250,000 on retirement accounts,
you can receive more than $100,000 of coverage if
your funds are maintained in different ownership
categories, according to the FDIC. For example,
you can have coverage of up to $100,000 for your
individual accounts at the bank, another $100,000
for your share of joint accounts at the same bank
and yet another $250,000 for your retirement accounts
there.
Be aware that some FDIC-insured CDs being offered
by financial institutions or sold through deposit brokers have unusual
features that may result in the FDIC protecting only the principal
during the term of the CD.
An example is a five-year CD, whose interest rate
isn't fixed but varies with the ups and downs of the stock market,
that has no guaranteed minimum interest rate, and pays only when
the CD matures in five years instead of accruing interest on a daily
or monthly basis. The FDIC says federal insurance would cover only
your principal, not any interest, because there is no specific,
guaranteed interest earned under terms of the contract.
The National
Credit Union Administration is the federal agency that insures
deposits in federal credit unions and state credit unions that are
federally insured. Deposits of member institutions are insured up
to $100,000 per customer (individual or business.) As with FDIC insurance, retirement accounts are covered up to $250,000.
|
Chapter 6: Banking institutions
