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Last Friday after the market close, IndyMac reported that it was in serious financial trouble. By Monday, the Federal Depositor Insurance Corporation (FDIC) had stepped in and taken over the bank. People had started lining up to withdraw their savings, similar to the bank runs of the Great Depression.

Was their money there?? Of course. The FDIC has been around since 1933, with the sole purpose of guaranteeing the money of depositors is safe in times of bank uncertainty. This is just the first HIGHLY VISIBLE takeover of a bank since the Savings and Loan crisis of the 1980’s, so people are nervous. 

Look, Up in the Sky, It’s a Bird! It’s a Plane! It’s a Frog!. A Frog?!??

The FDIC steps in and assumes control of banks that are on the edge of serious trouble (and serious trouble is defined as not having enough operating capital to continue to operate as a bank) and guarantees the money is there, up to $100.000 per depositor.

It acts as an insurance company, that pays out to depositors so they don’t lose their deposits. This recent IndyMac default is estimated to eventually cost the FDIC between $4 Billion and 8 billion dollars to cover all affected depositors.

So why is there still a run on the bank this week?? The FDIC only insures up to $100,000 per depositor. If you have more than that, you might have some issues. Currently the FDIC is allowing people to withdraw the full $100k PLUS 50% of any funds above that amount in their accounts. There is still money at risk, but at least most of the money is being covered. Eventually, it is been said that all the funds are likely to be available, but that might be a while as the FDIC re-organizes the bank.

Here I Come to Save The Day!

The limits on covered deposits isn’t just the $100k that is commonly known though. Depending on the type of deposit, and the number of depositors in the family it can be quite a bit more.

There are four account types that have deposit insurance on them.

Single Accounts - This is the standard type that everyone hears about. A single depositor in the bank can have up to $100k of funds that are covered completely by FDIC.

Retirement Accounts - This includes, IRAs, SEP-IRAs, and other types of retirement accounts held at the bank. The sum of all these accounts is protected by the FDIC, up to a total of $250,000 in addition to the coverages of other account types.

Joint Accounts - For accounts with multiple people on the account each person has a claim to $100,000 of coverage for the money in the account.

Revocable Trust Accounts - Trust accounts such as Payable-On-Death or Living Trusts also have insurance, based on the beneficiaries on the trust. That means if Grandpa sets up a Living Trust for the grandkids, and he has 5 grandchildren, the account is protected up to $500,000.*

*Other requirements exist. For exact requirements, consult a financial professional for your specific situation.

A Typical Scenario

Let’s say that Joe and Jane Sixpack have been really saavy with their savings. They each have an individual bank account with $100k, a Joint account with $200k, each has an IRA with $250k, and they have set up a Living Trust for their 5 grandchildren with $500k in it.

They are completely safe, even though they have  $1.4 Million in savings!

So if you’re still worried about the bank, and the money in it. Maybe it would be better to spread it out a little more widely, and you can sleep easier.

Do the current banking defaults have you worried? Leave us a comment why!

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