Considering the cost of homeowners insurance, auto insurance and health insurance, most Americans already feel they are spending too much money on insurance. Fortunately, every American can take full advantage of free government programs to make sure every cent in his or her bank and brokerage accounts is protected.
Most people have heard of the Federal Deposit Insurance Corporation, or FDIC. Today, few Americans pay any mind to the integrity of the U.S. banking system. The FDIC had played a big part in building that confidence over the years.
The FDIC was created in 1933, during the heart of the Great Depression. Incredibly, more than one-third of American banks failed during the early years of the Depression. Starting in 1933, the FDIC began insuring $2,500 in member bank deposits per person.
Today, that limit has been upped to $250,000 per person, per bank, per ownership category. FDIC insurance covers a wide range of deposit accounts, including checking accounts, savings accounts, money market deposit accounts and certificates of deposit.
If you have less than $250,000 in these types of accounts in U.S. banks, check the FDIC’s BankFind search engine to confirm that your bank is covered. The FDIC also has a toll-free number (1-877-ASK-FDIC) if you have trouble finding your bank. If you have less than $250,000 in the bank and you have confirmed that your bank is FDIC insured, you are likely totally covered.
Upping your coverage. If you have more than $250,000 in the bank, things get a bit more complicated. However, even people with more than $250,000 deposited in U.S. banks may be fully covered if they are creative.
The $250,000 FDIC insurance limit is on a per-bank basis. Kevin LaCroix, attorney and executive vice president of RT ProExec, says there are plenty of options for additional coverage.
“If the limit becomes an issue, banking consumers should consider either splitting their deposit funds between institutions to maintain deposit levels below the statutory limit, or they should consider investing in an investment vehicle like CDARS,” LaCroix says.
The Certificate of Deposit Account Registry Service is a network of partnered banks that work together to make sure that deposits in excess of $250,000 are fully insured by splitting them up among partner banks. Once a customer signs a CDARS agreement with a single bank, he or she gets all the benefits of full coverage without the hassle of dealing with multiple banks.
Common mistakes. Even though there are plenty of options available for Americans to get full deposit coverage, not everyone takes advantage.
FDIC media relations officer Julianne Breitbeil says some depositors expose themselves to risk because they misunderstand the FDIC rules.
“One of the biggest mistakes people make when it comes to FDIC insurance is assuming that the coverage is on a per-account basis,” Breitbeil says. “If you have $200,000 in a checking account and $200,000 in a CD at the same bank, only $250,000 of that $400,000 is covered.”
“Banks are also offering consumers a broad array of investment products that are not deposits products, and unlike the traditional checking or savings account, these non-deposit investment products are not insured by the FDIC,” says Andrea Puchalsky, communications director of deposits, corporate finance, consumer banking and investing at Ally Financial.
For example, annuities underwritten by insurance companies are not covered by the FDIC. Stocks, mutual funds and U.S. Treasury bonds are also not covered.
Additional security measures. Fortunately for investors, another government program protects against losses of stocks, bonds, cash and other securities at a brokerage firm. The Securities Investor Protection Corporation provides $500,000 in total protection and $250,000 in cash protection to Americans with accounts at SIPC member brokerage firms. The SIPC has a full list of member brokerages on its website.
In addition to SIPC coverage, bank depositors also get extra layer of security from the banks themselves. For example, banks typically reimburse funds that are lost via fraud or theft.
Ally Bank offers an online and mobile security guarantee that guarantees customers will not be liable for any unauthorized online or mobile banking transaction as long as they report it within 60 days after receiving their statement, Puchalsky says.
The days of gangsters with Tommy guns staging bank stickups may be long gone, but hackers pose just as much of a threat to today’s banks.
The worst-case scenario. U.S. bank failures may not be common, but they do still happen. In fact, there were five bank failures in the first nine months of 2016. In the unlikely event that your FDIC-insured bank fails, don’t panic.
“Remain calm and go to the FDIC’s website, where information about the receivership and the successor financial institution is posted,” LaCroix says. “Among other things, the FDIC’s website describes…
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