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Is Your Money Safe?

By Monica Goel

We have had lots of questions from clients in the last few days regarding the status on the federal takeover and failure of IndyMac Bank. 

Our strong advice is to be sure to break up your accounts into increments of $90,000 and deposit in different banks.   We always advise executors to open up multiple accounts to make sure the monies are FDIC insured.

Here are some answers to common questions you may  have:

Q: How can I make sure my money is safe?

A: All deposits accounts worth $100,000 and less are automatically insured by the FDIC. Many retirement accounts, such as IRAs and 401(k)s, are insured to $250,000 per person. But since it's a person's aggregate deposits, and their not individual accounts, that are insured, any amounts over $100,000 deposited at any one bank are not covered.

While keeping more than the limit at any bank means taking a chance, the risks can be bigger with smaller companies, provided they're heavily exposed to mortgage and other debt during the current downturn.

Q: How much money does the FDIC have?

A: The FDIC has nearly $53 billion in insurance funds. Beyond that figure, Bovenzi said the FDIC would have go to other banks to raise more money, adding that in such a case, consumers could expect to see some of among passed on to them in the form of higher fees.

The current estimated loss to the FDIC resulting from IndyMac's failure is between $4 billion and $8 billion.

Q: How big does FDIC like to keep its deposit insurance fund?

A: The FDIC board of directors has set a Designated Reserve Ratio of 1.25 percent. That means their "target" balance for the fund is 1.25 percent of estimated insured deposits. As of March 31, the fund was $52.843 billion and insured deposits were $4.431 trillion, which resulted in a reserve ratio of 1.19 percent, 0.06 percentage point below the Board's target. If the fund falls below 1.15 percent of estimated insured deposits, the FDIC is required by law to adopt a restoration plan that will bring the reserve ratio back to 1.15 percent within five years.

Q: Do banks have to pay into the deposit insurance fund?

A: Yes. The total amount depends upon the assessment rate assigned to the institution and the size of their assessment base ? which is roughly equal to an institution's total domestic deposits. Assessment rates are assigned to institutions based upon the risk they pose to the fund, and currently range from 0.05 percent to 0.43 percent, with the vast majority if institutions ? almost 94 percent ? paying between 0.05 percent and 0.07 percent.

Full post as published by Estate Planning Practice Blog on July 15, 2008 (boomark / email).