Dear Dr. Don,

In the event that GMAC Bank does fail, even with access to the TARP, would I lose all of my interest earnings on my CD investments at GMAC Bank, assuming they do not mature prior to a failure? I understand that the Federal Deposit Insurance Corp. will insure any such principal investments up to $250,000 up to Dec. 31, 2009.

Victor Vigorish

Dear Victor,

FDIC insurance covers both principal and accrued interest, up to the limits of the deposit insurance, through to the day of the bank failure. Accrued interest is interest earned but not yet paid on the investment. Here’s the information relating to interest earnings as presented in the FDIC publication, “Your Insured Deposits“:

What does FDIC deposit insurance cover?

FDIC insurance covers all types of deposits received at an insured bank, including deposits in checking, NOW, and savings accounts, money market deposit accounts, and time deposits such as certificates of deposit (CDs).

FDIC deposit insurance covers the balance of each depositor’s account, dollar-for-dollar, up to the insurance limit, including principal and any accrued interest through the date of the insured bank’s closing.

As you point out, the insurance limit increase to $250,000 was originally slated to end Dec. 31, 2009. However, that deadline has been pushed back to Dec. 31, 2013.

However, this change does not apply to IRAs and certain other retirement accounts. These accounts will continue to be insured for up to $250,000 per owner, since the FDIC insurance limit for IRAs and certain other retirement accounts was changed to $250,000 back in April of 2006 and is not an outcome of the current financial crisis.

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