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FDIC pays quickly if bank fails

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.

Dear Dr. Don,
I'm currently researching banks that offer a decent APY for both CDs and savings/money market accounts. GMAC Bank seems to meet my needs. Should I be concerned with the overall financial shape of GMAC? I realize it is FDIC insured but I don't want to face any future challenges accessing these funds. Thanks,
-- Mark Muddle

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Dear Mark,
GMAC Bank is owned by GMAC Mortgage, which is an indirect, wholly owned subsidiary of General Motors Acceptance Corporation (GMAC), which is a wholly owned subsidiary of General Motors. The financial press has considered the sale of GMAC a way to shore up GM's finances but the impact of a GM bankruptcy filing on GMAC Bank's FDIC-insured deposits is easy to handicap -- the FDIC would back those deposits.

Beyond the reserves held by the FDIC, a FDIC-insured deposit is backed by the full faith and credit of the United States government, so an insured deposit isn't at risk. In the event of a bank failure there could be a delay in accessing your insured funds. Here's what the FDIC says about the potential length of this delay in its publication, "Your Insured Deposit":

  • How long does the FDIC take to pay insurance on deposits after an insured bank fails?
  • Federal law requires the FDIC to make payment as soon as possible. Historically, the FDIC pays insurance within a few days after a bank closing either by establishing an account at another insured bank or by providing a check. Deposits purchased through a broker may take longer to be paid because the FDIC may need to obtain the broker's records to determine insurance coverage.

    Customers with uninsured deposits receive the insured portion of their account as described above. They will wait longer to receive payment for some or all of their uninsured funds. The amount of uninsured funds they may receive, if any, is based on the sale of the failed bank's assets. Depending on the quality and value of these assets, it may take several years to sell the assets. As assets are sold, uninsured depositors receive periodic payment on their uninsured deposit claim.

You can use Bankrate's Safe & Sound, or CAEL, ratings to research the financial integrity of a bank, savings bank, savings and loan, or credit union. GMAC Bank has a CAEL rating of 2G and a Safe & Sound rating of four stars. The addition of the G rating to the CAEL rating speaks to rapid growth in the bank's asset base. The Safe & Sound ratings are also provided for financial institutions when you search rates, either nationally or in your local market. Visit Bankrate's guide to those ratings.

Your insured deposit isn't at risk. You have to weigh your concern about having immediate access to your funds in the event of a bank failure against the relative attractiveness of the yield offered and the probability that this financial institution might fail. I don't see any reason to avoid having an insured deposit with this bank, but I also don't see a compelling reason to choose this bank over others with similar yields and bank safety ratings.

Bankrate.com's corrections policy -- Posted: Jan.18, 2006
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