Even though we’re in the eye of the hurricane, these days I’m an optimist.
So when I write a column on what to do if your bank fails, let’s not get alarmed. Chances are your bank is just fine. After all, the vast majority of U.S. banks are just fine, and only several dozen have crashed.
According to TheStreet.com’s database of bank failures, 42 U.S. banks have gone under since the beginning of 2008. Combined, the total assets at those banks were $380 billion. Approximately 252 additional banks are considered “problem institutions” by the Federal Deposit Insurance Corporation, through the fourth quarter of 2008.
But 42 banks did fail, and the fact that most banks don’t fail is little consolation to customers at Georgia-based Freedom Bank, the last bank that went into receivership. (If you want to know about others, be sure to check out TheStreet's ongoing series tracking new bank failures.)
So if your bank is either on the FDIC’s “problem child” list or if it fails more unexpectedly, it pays to have a plan to protect your assets. Hey, my job is to help you accumulate wealth, and a key cog in that machine is to keep preserve the assets you’ve already accumulated.
Before we get started, know that despite what you may have heard about the FDIC's own financial problems, the agency is solid and will not let you down if your bank fails. In fact, the FDIC never has let bank customers down since it was created by President Franklin Delano Roosevelt decades ago. The current FDIC chairperson, Sheila Bair, is tough as nails and is running the organization superbly, and under tense conditions. Ms. Bair won't let us down, as I know after looking her in the eyes during a recent town hall meeting I had with her on CNBC. She's the real deal, smart and realistic. She also has the situation, as bad as it is, under control.
With that in mind, start by finding out if your bank is covered by FDIC insurance. Under the FDIC umbrella, up to $250,000 in individual bank deposits is protected.
Even though the FDIC covers your bank deposits, it doesn’t cover all of your financial investments.
- Checking accounts
- Savings accounts
- Trust accounts
- Certificates of deposits (CDs)
- IRA retirement accounts
- Money market deposit accounts (in most cases)
Here’s a list of what is not covered by the FDIC:
- Mutual funds
- Life insurance policies
Even if your bank appears safe, as is likely the case, there are some key steps you can take to make sure that, even if your bank does fail, the asset bite won’t be too painful. A smart move is to spread your assets around to different banks, creating a network of FDIC-protected “umbrellas” that will shield your assets. For example, you could have $1 million in four different banks (in $250,000 increments) and be insured for the whole amount.