Bank Failures (Public Service Announcement)

[Nate tha\\\' Great]

For those of you that don't know, a medium-sized Internet bank called NetBank has been shut down by the FDIC and forced into bankruptcy. There will likely be other banks that follow as a result of problems in the credit and mortgage sphere.

http://www.ajc.com/business/content/busi...age_tab_newstab

The FDIC insures up to $100,000 in deposits at any one institution. Any amounts above the $100,000 are subject to the risk of bank failures. Specifically, if the bank fails, you become one of its creditors, and have to wait for asset sales during the bankruptcy process to get the rest of your money back. And of course, you may never get that money back at all; most banks are not able to cover the full amount of uninsured deposits once they fail.

I'm sure that some of you guys have quite a bit of money in various sorts of online checking and savings accounts. The rule of thumb is very simple: never have more than $100,000 deposited at any institution you do not trust absolutely and 100% to the fullest. If you have more than $100,000 and want to deposit money at smaller banks because of their superior interest rates, you should split your money up between several such institutions, never with more than $100,000 in any one place at any given time. Large banks like Chase or Wells Fargo or HSBC are probably completely safe, but there are the smaller guys you should be doing a little due diligence on at this point in time.

[Yoshi63]

I thought everyone knew the $100k thing. Why would you keep that much money in a bank anyways? I keep several thousand in the "bank" at most, and the rest consistently gets shipped into a money-market paying ~5%. My bank only pays like 1.25%.

[jkpoker]

There are a lot of online banks that offer 5% interest that are also FDIC insured.

FWIW

[kyleb]

FDIC has a long standing history of refunding people's money even if they have well over $100k on deposit. That being said, relying on the government to actually live up to their word is usually not such a great idea. Nate's advice rings true.

[MikeyPatriot]

Nate, do you have Interest Above Replacement Banks stats for us?

[danielkomen]

I never in a million years would have thought that my money in my pokeraccounts or neteller was safer than my money in a US bank.

Sure I shouldn't have kept that much money in one spot but I was transferring money for my business. I actually had had a lot of money in Paypal and was moving it through my bank account to disburse it to my partners. I remember thinking when I was moving it "I don't think my money in Paypal is insured."

You said the FDIC often gives back more than the $100,000? Do you have any stats on this? They've already given back 50% off the amounts over $100,000 which I was told was very unusual but I'm trying to figure out how much I might lose.

[stoxtrader]

There are ways to structure your accounts so that you are insured for more than 100k, some are quite easy. Anything my wife cosigns on with me is automatically 200k, and I have setup accounts with my children as beneficiaries so we are up to 400k in FDIC coverage.

details here:

http://www.fdic.gov/deposit/deposits/insuringdeposits/

[offthenuts]

Thanks a ton for the heads up Nate. I am definitely one of the ignorant poker players and this sort of reminds me to get my head out of my ass. Does anyone know if you are protected if you have 100k in savings with ING or emigrant or whatever and then additional money in CDs with the same bank? Thanks,
Ben

[pig4bill]

[ QUOTE ]
FDIC has a long standing history of refunding people's money even if they have well over $100k on deposit.

[/ QUOTE ]

Maybe. Sometimes. The FDIC says on their website that people have lost money that had over 100k in their account.

[Nate tha\\\' Great]

[ QUOTE ]
I thought everyone knew the $100k thing. Why would you keep that much money in a bank anyways? I keep several thousand in the "bank" at most, and the rest consistently gets shipped into a money-market paying ~5%. My bank only pays like 1.25%.

[/ QUOTE ]

There are a lot of 2+2ers who don't know the first thing about personal finance. Trust me on this one, because I used to be one of them.