FDIC: A Reliable Friend

June 4, 2008
By Mukesh Chatter

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In times of financial crisis, like the Great Depression, investors and savers alike might race to their bank, withdraw every last cent, and store their life savings under their mattress.

As the subprime crisis and weak dollar continue to have an impact on the economy in 2008 – please don’t do this!

It’s important to understand that you don’t need to panic in financially difficult times, and that beneath a mattress is the last place you want to store your savings.

There is a fail-safe system in place, and an excellent one at that, called the Federal Deposit Insurance Corporation, better known as the FDIC. Throughout time, banks have come and gone, but since 1933 the FDIC has always been there to provide support and reassurance to investors.

In 1929, when the stock market crashed on Black Tuesday it kicked off one of the most financially painful times in American history. Unfortunately, there was no institution in place at that time to protect one’s savings. The FDIC was still 4 years from its creation. Today, the picture is completely different. We should think of our current situation as a weak dollar and subprime crisis, among other things. This situation has undoubtedly been making recent months very difficult for Americans, and may continue for several months to come. But in contrast to 1929, we now have the FDIC to protect our savings.

The FDIC currently guarantees savings and checking deposits in participating banks up to $100,000 per depositor. Does this mean only up to $100,000 is insured? Yes and no. One of the most admirable aspects of the FDIC is that accounts at different banks are insured separately; meaning one person could keep $100,000 in each of two separate accounts and be fully insured for a total of $200,000. Also notable, the Federal Deposit Insurance Reform Act raised the amount of insurance for an Individual Retirement Account to $250,000.

Since 1933, not a single cent from any account within that $100,000 range has been lost due to bank closings.

But do keep in mind annuities, stocks, life insurance policies and mutual funds are not FDIC insured. Why is this? The FDIC only covers savings options and these products are classified as investment options, rather than savings options like checking and savings accounts.

If you have any concern that your bank may be the next to close, call the agency at 877-ASK-FDIC or go to http://www.fdic.gov/.

It will help you sleep at night.