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Dear Dr. Don,
About a year ago, I was told by my bank manager that the Federal Deposit Insurance Corp. is only obligated to pay
off 7 percent of the value of my deposits and that it has 99 years to pay off the balance. I have asked several
others in the banking business. They confirmed that it is true. Have you ever been advised of this?
-- Jimmy Juxtapose
Dear Jimmy,
This is a banking urban legend that keeps popping
up in various blogs and posts. The Better Business
Bureau and the FDIC got together in 2006 to publish
a news alert on the topic. Teri Cullen, writing
for The Wall Street Journal, covered it in a blog
post titled "FDIC Myth Busters" in November 2007.
I'll give center stage to the FDIC
with this excerpt from its Spring 2006 Consumer
News publication
feature, "Misconceptions:
A Top 10 List":
Misconception Number 3: If a bank fails, the FDIC could take up to 99 years to pay depositors for their insured
accounts.
This is a completely false notion that many bank customers have told us they heard from someone attempting to sell them
another kind of financial product. The truth is that federal law requires the FDIC to pay the insured deposits "as soon
as possible" after an insured bank fails. Historically, the FDIC pays insured deposits within a few days after a bank
closes, usually the next business day. In most cases, the FDIC will provide each depositor with a new account at another
insured bank. Or, if arrangements cannot be made with another institution, the FDIC will issue a check to each depositor.
A recent column, "U.S.
government stands behind deposits," discusses FDIC-insured deposits in greater detail, but let's retire the 99-year
payback rule myth.
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