Bank solvency and FDIC insurance

The FDIC insures to $100K. The somewhat convoluted story contained the death of a spouse, and the second $100K would be in the wife's name along with the first. The husband died the day the bank went under.

There's a lesson there. If you insist on maintaining that much cash in CDs (as compared to treasuries) you might consider using multiple banks to get the extra coverage. And if any bank employee offers the line "you know, our CDs are FDIC insured, T-Bills are not", you might want to offer them a kick in the shin as you withdraw your money.

JOE

hmm.. I think Will was asking about the checking and savings accounts which had small balances, not about the CD story, which turned to a happy ending

I don't understand why the joint, small balance, savings and checking were not covered.

Because of the 100,000 max per person per bank?

I thought it is per account, not per bank.

FDIC: Insuring Your Deposits "Basic Insurance Amount Is $100,000

The basic insurance amount is $100,000 per depositor per insured bank. "

But today there are so many options. The individual has easy access to multiple banks (I'm thinking brokered CDs, all FDIC insured) or t-bills, that I'd wonder how many people are running into this as a concern. Given the distribution of wealth, and allocation of those assets, this is probably a 'top 20%' issue, if that much. JOE

Commentary at the time was that the limit was way too high - FDIC insurance was intended to protect the small saver, not the rich investor. It may only have come back in line.

" Since 1934, the basic coverage amount has increased five times, from $5,000 to $100,000. Most of the increases more or less reflected cost-of-living adjustments, but the most recent increase is an exception. The 1980 jump from $40,000 to $100,000 had more to do with attracting deposits to insured institutions in a competitive market of very high interest rates. Today, 20 years later, $100,000 of deposit insurance has lost about half its value, based on the Consumer Price Index. "

"The current limit was pulled out of thin air in 1980, and thus has no particular claim to optimality--then or now. Many observers have argued that the $100,000 limit was excessive when it was set in 1980, and some would say it still is. But the real value of the $100,000 limit has been roughly halved by inflation since 1980 and, as the Options Paper points out, it is no longer so far out of line with its average since the late 1960s. (It was out of line in 1980.) We are no better able than others to decide on the optimal level of coverage. But we offer five observations." (The observations go on to suggest a higher limit is in order, but that is not based on the $100K limit having depreciated in value.)

Mark Freeland snipped-for-privacy@sbcglobal.net

which had small

IRA limits were recently upped to 250K

The 1980s had a lending crisis similar to now. So many S&Ls went under that the S&L counterpart to FDIC went bankrupt and the federal government under Bush 41 cleaned them up with $150 billion.

Bank-based IRAs are insured to $250K.

My understanding is that, the FDIC insurance has a limit of $100K per person.

The elderly widow already had a CD in her own name for $100K. So that was all the FDIC owed her personally at the time of the bank failure.

Her now-dead husband also had a similar CD, with survivorship rights to her.

The question in the story was about whether the dead husband's CD would be covered for reimbursement to her personally. Since it was over her per-person FDIC limit.

So the conclusion of the story was that, she received her husband's CD money (in addition to her own), since he was still alive (and thus insured) at the moment of the official bank closing (3 PM on a business day.) He died several hours later, but, as of the 3PM closure, he was officially granted his own reimbursement (even if the paperwork wasn't done yet.)

The issue wasn't about cancelling FDIC coverage just because one spouse on the account died. But, rather, about how the timing of the death related to the per-person limit.

Bob and Jane are married, both having $100K in the bank. Then, that bank goes under, with an FDIC coverage limit of $100K each. They are both officially due their reimbursements at 3PM. Then, Bob kicks the bucket hours later. Jane is still legally entitled to his $100K as an inheritance. Even though her own FDIC limit was filled with her own money.

The money in their joint checking and savings accounts is lost. Because it was over the $100K per-person limit. And that would have happened even if Bob were still alive.

Today I read S&P downgraded some money market funds because they held some subprime paper. Yesterday I heard some guys gold coin stash was stolen by his housekeeper. Shows nothing is absolutely safe.

joetaxpayer wrote: [...]

compared to >treasuries) you might consider using multiple banks to get the extra coverage. And if any >bank employee offers the line "you know, our CDs are FDIC insured, T-Bills are not", you >might want to offer them a kick in the shin as you withdraw your money.

Pardon my naiveté, but I don't understand the implications above. Why are treasuries (BTW which are you referring to: U.S. Treasury bills, notes, or bonds) obviously so much better that I would have to "insist" on bank CD's instead? Why would I want to stop doing business with a bank just because they point out the existence of FDIC? (I'm guessing on the latter item that you are just trying to point out that in both cases your money is ultimately guaranteed by the same governmental entity?)

-Mark Bole

compared to >treasuries) you might consider using multiple banks to get the extra coverage. And if any >bank employee offers the line "you know, our CDs are FDIC insured, T-Bills are not", you >might want to offer them a kick in the shin as you withdraw your money.

Mark - FDIC insures an individual's account (let me skip the $250K IRA for this reply) to $100K. The T-Bill has the direct guarantee of the treasury, as opposed to the FDIC. The FDIC can make you wait while they count the bank's money. A one year T-Bill will always cash out to face value. My sarcasm was aimed at a bank clerk who I heard talking to a customer. She wanted a T-bill, which had the slight tax advantage for state tax, but at the time had a higher yield than the 1 year CD anyway. And the bank had that available, they offered the transaction as a service. The clerk said 'you know the CD is FDIC insured, the T-Bill has no insurance'. I wouldn't want to do business with anyone who would mislead like that. Up to the 100K, I wouldn't push either, let the customer choose, but the clerk's misleading remark bothered me. I hope that clarifies my post. JOE

Can you clarify how to buy t-bills or other treasuries other than I and EE bonds? I looked over the Treasury site but how do you know how much to bid for them? Can you just go through banks and ask what they are charging for them? What's in it for the banks?

Are I and EE bonds the only kind that are easy to purchase?

They can be used for 401K and IRA's? Thanks so much.

joetaxpayer wrote: > FDIC insures an individual's account (let me skip the $250K IRA

Speaking of which, I just opened a new Money Market account at Compass Bank today. The clerk tells me that accounts at the bank are FDIC insured to $200k per individual. The sign on his desk said $100k. When I questioned him about this, he said the limit had just changed. I made sure he understood the question - per individual, not per couple, not for IRAs. Any truth to this?

-Will

Virtually all individual investors place "non-competitive bids" for Treasury bills, notes, and bonds rather than bidding a minimum yield. This means (a) you're guaranteed to get the security you asked for, and (b) you'll get approximately the auction's average yield.

Maybe. But pretty much anyone buying them either uses the Treasury's "Treasury Direct" program or uses a brokerage account at their favorite broker. At least some brokers (Fidelity is one) levy no commission on Treasuries bought at auction (don't know how much of a markup they build in, though).

Depends on your definition of "easy". Between Treasury Direct and brokers, I feel T-Bills, Notes, and Bonds are pretty easy to purchase as well.

T-Bills, Notes, and Bonds can be bought within any brokerage account and therefore can be in IRAs and 401(k)s. Savings bonds, however, cannot be.

-- Rich Carreiro snipped-for-privacy@rlcarr.com

There's always a risk second guessing the experts. He's employed by the bank, he must know what he's talking about, no? Well, I just looked at the FDIC website, you'd think a change of this magnitude would make their site, at least on the press release page. For fun, I'd go back and ask him to put it in writing, I'd bet he'd not be so quick to do it. JOE

Good idea, so I went back and asked to get this in writing yesterday. The same person was not working, so I got someone else, with a completely different story. Now it's $100k per titled account and, get this, per unique beneficiaries named. The example given by the bank person was that my wife and I would get $100k of coverage for an account titled in my name only, $100k for a joint account, and $100k for an account titled in her name only. Assuming that these accounts all had the other spouse as beneficiary, I could then open a fourth account with, say, my son as beneficiary and get an additional $100k in coverage for that account because the beneficiary changed.

Not surprisingly, they could not provide me with this policy in writing, even after assuring me that it was in one of their pamphlets, though after searching they could not locate it. Supposedly they will email the poilcy to me. In the meantime, I'm going to at least switch branches, but maybe I should switch banks... You would think that this would be a topic the bank would drill into its employees' heads.

-Will

Savings and checking accounts are still only insured to $100k. It is just the *retirement* accounts that have increased to $250k. There are a heap of examples at

John Cowart