You may have heard of “FDIC Insured deposits,” and wondered what it means exactly? FDIC stands for the Federal Deposit Insurance Corporation, which was created in 1933 in response to the severe bank panics brought on by the Great Depression.

During the 19th century, bank panics were relatively common: when economic downturns and unemployment caused consumer confidence to plummet, many investors would panic about the safety of their money, and withdraw their cash from the banks. After the “Panic of 1893,” when the failure of several banks involved in shaky railroad financing caused a run on the banks, the federal government began to draw up plans to create better security for bank deposits, since bank runs had the effect of making the economy worse. So they created an institution that would guarantee deposits held by commercial banks.

The FDIC provides deposit insurance to guarantee the security of checking and savings deposits to its “member” commercial banks. You can tell which banks are members of the FDIC because they display an offical FDIC logo at each teller window.

Deposits are insured up to the amount of $100,000.00 per depositor per bank. If you have more than $100,000.00 to deposit, you could deposit your money at two different institutions, or you could place accounts in different ownership names. For instance, a trust, joint account, or beneficial ownership would be considered as separate accounts with different ownership names. Switching the order of names on a joint account (ie, David and Hortense Willinger instead of Hortense and David Willinger) does not count as a different ownership name, because the owner’s names are the same.

Certificates of deposit are one of the safest investments because they are treated as a bank deposit and insured by the FDIC. The FDIC does not insure stocks, bonds, annuities, municipal securities, or mutual funds. They also do not insure the contents of safe deposit boxes.

A fixed rate certificate of deposit (or CD) is a type of investment product offered by banks and other institutions, which is very similar to a checking or savings account. However, when you purchase a CD, you are making what is called a “time deposit” in the bank – a deposit which you cannot touch for a specified period of time, and which bears interest which is compounded periodically.

A fixed rate CD is the most common type of CD. Variable rates, “bump-up” rates, and rates tied to an index such as the stock market, are less common. However, a fixed rate CD offers you the security of knowing that your interest rate will not fluctuate over the life of the investment. When interest rates are high, you can lock in the best CD rates and keep them over the life of the CD. In that respect, even though the interest rate of the CD is generally considered low when compared to some other investments, buying a certificate of deposit is usually considered one of the least risky investments out there.

Like a savings account, your certificate of deposit is insured by the FDIC. However, unlike a savings account, a CD is a type of time deposit, which means that it has a specific, fixed term. When you put money in a CD, you do so with the expectation that it will be held there for the entire term. There are generally stiff penalties for early withdrawal from a CD account.

You can buy a certificate of deposit for various terms. Some typical CD terms would be a three month, six month, one year, or five year CD. The longer term CDs generally offer the best CD rates, and CDs almost always carry a better interest rate than savings accounts from which money can be withdrawn at will. Fixed rates CDs are the most common, which protects your certificate of deposit from the fluctuations of the stock market. However, some banks offer CDs with a “bump-up” feature, which will allow for a single readjustment of the CD’s interest rate during the term of the CD. Shop around to see what the best certificate deposit rates are in your area.

The fight to stave off more foreclosures just got a much-needed idea! This past Friday, FDIC Chairwoman Sheila Bair revealed her strategy to assist 2.2 million borrowers’ secure new loans and ultimately help 1.5 million people keep their homes.

The proposal suggests that delinquent homeowners would get a much-needed shift in the amount of their mortgage payments. Those who are two months or more past due would have their payments shifted to a more manageable 31% of their gross monthly income under the terms of their new loans.
Additionally, the plan offers not only a financial incentive of paying loan providers $1000 for reworking mortgages, but also a strategy of the government sharing the financial burden that has previously scared off lenders from rolling up their sleeves and pitching in to help. Bair suggests that the government would take a 50% responsibility of the losses if a borrower taking advantage of the assistance defaults.

A similar plan has already been in effect — Bair has been using this strategy with IndyMac, the failed mortgage lender the FDIC took over in mid July. Although there are currently other proposals on the table, Bair has hoped that this one would be the winner.
The main differences between Bair’s plan and the current government options are that there would be no reduction of principal amount owed, and compensation would be allotted for the lenders who jump on board. Although the hopes were that lenders would join forces with the government and help out suffering homeowners, that $1000 cash bump could certainly assist them in a change of “heart” and subsequently, mortgage terms.

Bank customers will see a temporary increase in FDIC coverage to $250,000 per depositor.

Included in the Emergency Economic Stabilization Act of 2008 was the provision for increasing Federal Deposit Insurance Corp. protection per depositor to $250,000 through December 31, 2009. The previous limit of $100,000 has been around since 1980 and was probably long overdue for an increase. The legislation provides that the coverage return to the lower limits at the end of next year, an unlikely event.

The bill will make it easier for savers to keep their money at one bank instead of spreading it around to keep the deposits fully protected. We wouldn’t expect this to have a positive effect on savings rates, probably the opposite in that banks pay the premiums for the FDIC coverage.

The expectation is that confidence in banks will increase and limit the kind of bank runs that hobbled Wachovia, WaMu and Indymac. It also increases the liability at the FDIC where $45 billion in funds protects $4.5 trillion in bank deposits.

Another bank bites the dust. Citigroup agreed to a takeover of the troubled Wachovia in yet another government engineered rescue.

With huge losses in its mortgage portfolio, the nation’s sixth largest bank is now the latest to fail – sort of. “Wachovia did not fail; rather, it is to be acquired by Citigroup Inc. on an open bank basis with assistance from the FDIC,” the Federal Deposit Insurance Corp. (FDIC), the banking industry regulator, said.

Citigroup will buy the majority of Wachovia’s operations, including the bulk of its assets and liabilities. Citi will only assume up to $42B of losses from a pool of $312B of loans held by Wachovia; the FDIC will absorb losses beyond that and take a stake in Citigroup for the guarantee.

The takeover will create a retail bank with almost 10% share of the US market deposit sector in the continuing consolidation of US banks. Its business as usual if you have an account with the bank and no word on keeping the Wachovia name and brand.

Know what protection your money has at your bank. The Federal Deposit Insurance Corporation (FDIC) can insure you for a lot more than $100,000; know the details.

At an insured bank covered by FDIC, a single account is insured up to $100,000 in total. You may have two or three accounts at that bank, as long as the aggregate is less than $100,000, you are covered.

The FDIC will also cover up to $100,000 for each person listed on a joint account at the same bank. It’s important to understand these limits are based on the type of ownership, not the number or types of accounts. The FDIC calculates your joint account limit based on your share of any accounts you own jointly at that bank. A couple could be insured at a bank up to $400,000 using the combination of single and joint accounts.

If you exceed these limits, consider moving some of your deposits to another bank. Remember that limits are per bank, not branches of the same bank. Watch out for bank mergers as well.

The FDIC only covers deposit accounts like savings, checking, money market funds and CD’s. FDIC insurance does not cover money invested in stocks, bonds, municipal securities, mutual funds or annuities, even if the investments were bought from the insured bank. Also watch out for money market funds, they are considered an investment product and are not covered.