The failure of IndyMac Bank earlier this month has left some depositors worried. Though the bank’s demise was unusual — they were overly committed to funding bad home loans — they aren’t alone. Scores more financial institutions may also be vulnerable, possibly bringing about a rash of additional failures at a pace not seen since the 1980s.

For most depositors they have little to be worried about. When a bank fails, most funds are protected and access to their monies is almost immediate as the federal government steps in and takes over the failed financial institution. Soon thereafter, the closed bank is sold off with deposits transferred to a new institution.

Not every customer of IndyMac Bank will recoup their finds, offering a stark warning to everyone else who has money invested. Specifically, some funds are vulnerable, particularly if:

Accounts have more than $100,000 in them. The Federal Deposit Insurance Corp. (FDIC) limits the amount of money they will insure to $100K per individual accounts or $200K if joint accounts. The FDIC will also cover separate individual retirement accounts for up to $250K and certain revocable trust accounts for up to $100K each. A visit to the FDIC’s consumer page gives detailed information on deposit insurance, limitations, pay outs, etc.

Accounts are not titled correctly. Having “Totten Trust” or “Payable On Death” accounts where the monies will go to some other party upon your death are only covered if they are specifically titled that way. For example, if Bill has a $300,000 account for his three children the account needs to read, “Bill Smith POD to his 3 children.” Each child would be equal beneficiaries.

Some consumers have more money in their banks than they realize with accumulating interest pushing accounts about $100K. If  your balance is, let’s say, $103,114 and your bank fails. You’ll get $100,000 back but lost $3114. You still might receive a portion of the funds you lost back after the bank’s assets have been sold.

Although the FDIC knows in advance which banks are in trouble, they do not inform the public about problems, choosing to work behind the scenes instead. Fed worries of causing a “bank run” is the chief reason why you’re not told until after a bank failure has taken place, necessitating that you remain vigilant when it comes to managing your finances.

(Source: www.fdic.gov)

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Tags: commercial bank, FDIC, financial institutions, individual retirement account, IndyMac Bank, IRA, joint accounts, POD, Totten Trust