Not As Safe As You Think?

07/28/2008 12:00 am EST


Terry Savage

Author, The Savage Truth on Money

If you’re smart or lucky enough to have accumulated more than $100,000 in savings, you should certainly be smart enough to follow the FDIC rules about insuring money in the bank.

Yet currently only about 61% of all bank deposits are insured, with more than $2 TRILLION dollars sitting in bank accounts above the insured limits!

That’s four out of every ten dollars that the government isn’t required to repay in full if those financial institutions go under.

When the Federal Deposit Insurance Corp. took over IndyMac Bank a couple of weeks ago, more than $1 billion in uninsured deposits belonging to 10,000 account-holders was above the insured levels. Those depositors received only 50% of the excess uninsured amount—though they may get more money back in the future. 

For those of you who don’t know them, these are the FDIC’s insurance rules, which are available in detail here.

Basically, you’re covered for up to $100,000 on all your individual accounts (including CDs and checking and money market accounts), plus another $100,000 for your share of joint accounts. 

Retirement accounts are covered up to $250,000 per person—in addition to any other insured accounts.

And you can extend your coverage by correctly titling some trust and beneficiary accounts.

Business accounts carry only $100,000 coverage, no matter how many signers.  But if your business is a sole proprietorship, those accounts are added to your personal accounts to determine your coverage.

If you find that too confusing or don’t want to put your money in a bank, you could always buy Treasury bills direct from the government at the weekly auctions.  It’s easy to do online at

The interest rate on the weekly auctions of four-, 13-, and 26-week T-bills is set by the large institutions who bid competitively to buy huge amounts of these securities.  Individual investors agree to accept the average rate set at the auction. 

While money market mutual funds are not FDIC-insured, there are several that purchase only short-term Treasury securities.  The one I have personally used for the longest time is Capital Preservation Fund at

Banking experts, including the former Comptroller of the Currency, Eugene Ludwig, have devised a system of spreading the risk of bank certificates of deposit (CDs) through electronically distributing your deposits to a large group of participating banks.  You can learn more and find participating banks at

The bottom line: If you’re going to take risk, you should be paid for it!  Why leave money in low-yielding CDs that are above the insured level when you can be earning more elsewhere—or getting insured deposits at another bank?  Are depositors asleep at the switch?  Or do they have such blind faith that all “money in the bank” is insured? 

Well, apparently some depositors in IndyMac just got a wake-up call. While some banks are “too big to fail”, some deposits are “too big to be covered.”  Read the fine print.


Terry Savage is personal finance editor of The opinions expressed here are her own and do not necessarily reflect the views of InterShow.

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