For years, bank account holders have been able to take some solace in the fact that deposits were insured by the federal government. The Federal Deposit Insurance Corporation (FDIC) has long guaranteed deposits up to $250,000, but things have changed over the last year.
With banks running into widespread trouble over the last few years, the FDIC and its insurance fund are in trouble. In fact, the corporation announced recently that ratios had hit all-time lows. For all intent and purposes, the insurance fund is bankrupt.
Even given all of the other ugly economic factors of the recession, this has to be particularly troubling for today’s consumers.
Are bank deposits still insured?
Among all of the big questions that consumers will be asking now, this is probably the most important. What will happen to your money if something happens to the bank? Technically, your money is still insured by the federal government.
Even given the bankrupt status of the FDIC, there is still the guarantee that your money will be safe. According to published reports, the FDIC should be back up and running at its regular ratios by 2012. That news is encouraging, but the situation remains dire.
Safety until a crash
This apparent deposit safety is only good under certain circumstances. Though deposits might be guaranteed individually or in small numbers despite the bankruptcy, money will not be safe in the case of a large-scale bank crash.
Why is this the case? To put it quite simply, the math doesn’t work out. The money is not there, so if something were to happen, the FDIC would not have the funds to refund each and every deposit. Given the absence of a major bank disaster, this should be a non-issue, but the rational fear still exists for bank users.
What does this mean for you?
As a typical bank user, you might be wondering just what this means for you. Is this something that you should be worried about? The fact of the matter is that typical bank users have little recourse at this point in time. Leaving large amounts of money in consumer bank checking accounts continues to be a poor allocation of resources, especially given the current FDIC climate.
The fund does not have the ability to deliver upon the promises that it makes to consumers each and every day. This is the harsh reality of the current economic climate.
So what should you do? Start by checking out my recent article on storing cash in a savings account. It might not be the best idea.
This is Just the Beginning
This is just the start. Wish you knew more about investing in gold? You can, for free. Give me 10 minutes of your time every week, and I'll make sure you know everything about gold investments.
Just enter your email below and I'll personally send you our weekly update. Don't worry -- I hate spam too, and I'll just send the weekly update and that's it.
Tags: banking, banks, central banks, fdic
.
