Failure -- A Real and Present Danger
As most members are aware, funds
on deposit in US Banks are insured against bank failure by the
Federal Deposit Insurance Corporation (FDIC) up to $100,000. A
limit that hasn't changed in my lifetime! Any balance in excess
of $100,000 is at risk if the bank fails. Our members are aware
of this limit and are, I now believe, justifiably concerned.
Remember also that the $100,000
limit is per individual or business entity. A $100,000 CD and a
$100,000 checking account owned by the same person or company
are insured only for a TOTAL of $100,000.
Well, after some research into
the subject, I've concluded a couple of things -- that it's a
far more real danger than I thought and that there are some
reasonable strategies by which to protect yourself.
On the real danger side, consider
that, per the FDIC:
"On August 22, 2008,
The Columbian Bank and Trust Company, Topeka, KS was closed by
the Kansas Office of the State Bank Commissioner and the
Federal Deposit Insurance Corporation (FDIC) was named
Receiver. No advance notice is given to the public when a
financial institution is closed."
This is only one
of 117 unnamed banks (remember, no advance notice is given)
presently on the FDIC's "watch list". So, those
depositors were all covered for $100,000, right? Right.
And the rest of the story, as
Paul Harvey used to say? Beyond that, there were Forty-six
Million Dollars on deposit in that bank in excess of
the insured funds, that are unlikely to ever be seen by
those depositors. It might have been a whole lot more fun for
those depositors to have all withdrawn the money in $1 bills,
thrown it out in the street, and watched the scramble. Or to
have had a huge bonfire, fed by cash. Same result either way.
Last Friday, another shoe
dropped. Georgia's Integrity Bank was closed by the FDIC
on August 29 -- the tenth bank failure in the US this
Notice that feeling in your gut?
I'm betting everyone who had $200,000 or $400,000 on deposit
there is wishing they had taken the time to split that up
between 2, 3 or 4 banks.
So, that's potential strategy one
-- if practical, split it up between several FDIC-insured banks.
With online account transfers available, the delay time
transferring funds with no wire transfer fees is usually less
than 24 hours. And your standing Line of Credit should be set up
to cover you for an overdraft, just in case something gets
delayed. 1 day's interest at Prime isn't much to pay for the
peace of mind. Here's a place to find FDIC-insured banks
offering online transfers and high yields on cash deposits: http://www.bankrate.com/
Here's a list of six other
strategies you might consider: http://www.bankrate.com/brm/news/sav/20080827-insure-excess-deposits-a1.asp
(none of these are recommendations, and any of them may or may
not be appropriate for your situation). One may be available
through your own bank: http://www.cdars.com/.
CDARS actually splits your money up among a number of
participating banks for you. And apparently handles that
Please let us know of other good
ideas you have that might be useful to other
Chief Executive Boards International