Washington Mutual just became the largest U.S. bank to go under, ever.
But, it's still business as usual for bank and its customers. The Seattle-based WaMu (Stock Quote: WM) was seized by the U.S. government, and a deal was struck with JP Morgan Chase (Stock Quote: JPM) to buy deposits, assets and more. Part of the transaction requires a payment to the FDIC of approximately $2 billion.
The banks failure, and 12 others, may concern most individuals that hold a banking or checking account. But, here's a little something to ease your mind: you're probably insured. The Federal Deposit Insurance Corporation (FDIC), an independent government agency, protects bank depositors from the loss of and regulates approximately 5,000 banks."In the 75 years of the FDIC's existence, no depositor has lost a penny of FDIC-insured deposits," says Andrew Gray, the FDIC director of Public Affairs.
Still as banks such as WAMU and IndyMac sputter, individuals want answers, so MainStreet asked Gray about the bank insurer and how they work.
1) For consumers worried about their money, how much is insured?
The basic amount of insurance coverage provided to depositors of an FDIC-insured bank is $100,000, including principal and any accrued interest up through the date of the institution's failure. This $100,000 limit is applied separately to funds that a depositor has in different ownership rights and capacities. A depositor who holds deposits in different ownership rights and capacities can have deposits well over $100,000 at the same bank and be fully insured by the FDIC. The FDIC encourages consumers to learn more about deposit insurance limits by visiting www.fdic.gov, calling toll-free 1-877-ASK-FDIC or asking their FDIC-insured bank.
2) Is the figure the same if the accounts they hold at a bank are savings, checking, IRAs or even joint accounts? If not, how do they differ?
Deposit insurance coverage is not based on the type of deposit such as checking or savings accounts. Insurance coverage is based on the type of ownership category that the funds are titled under. All types of deposits—certificates of deposit (CDs), checking, savings, money market deposit accounts, and NOW accounts—held in the same name(s) in the same ownership category are added together to calculate deposit insurance. The most common account ownership categories are: Single accounts, joint accounts, revocable trust accounts and certain retirement accounts.
3) If a consumer's bank does fail, what steps would they take to be compensated for money held by the bank?
Generally, a bank is closed when it is unable to meet its obligations to depositors and others. One of the FDIC's responsibilities as receiver is to make good on the promise of deposit insurance by covering the balance of each depositor's account, dollar-for-dollar, up to the insurance limit, including principal and any accrued interest through the date of the insured bank's closing.