Two bank failures in a single day last week in the Baltimore region are a stark reminder to make sure your accounts are federally insured.
One account at Baltimore's Ideal Federal Savings Bank at the end of March had $602,000 of uninsured money — more than twice the amount of the standard insurance limit, according to banking analyst Bert Ely, who noticed the account on the latest financial reports available from the bank. Ideal and Bay National Bank of Lutherville closed Friday.
If that money was still deposited at Ideal on Friday, it's possible the account holder will end up losing about a third of that cash once the thrift's assets are sold and the proceeds disbursed to creditors, Ely says. (Deposits at Bay National were acquired by another institution and insured.)
Customer deposits at banks and credit unions are insured for at least $250,000, and the coverage can be significantly higher depending on the type of accounts and how they're titled. This standard limit — initially raised from $100,000 in 2008 as part of legislation to stabilize the economy — is set to expire at the end of 2013. However, financial reform legislation pending in Congress would make the $250,000 limit permanent.
Regulators don't give advance warning when they're going to shutter a bank, although the Federal Deposit Insurance Corp., which insures bank deposits, reported that the number of institutions on its "problem list" had grown from 702 to 775 in the first quarter. The FDIC also reported that about 40 percent of deposits aren't insured — that's a lot of money unprotected.
Usually after regulators close a bank, which typically occurs Friday after business hours, customers can have immediate access to their insured funds through checks and ATMs.
Bay National's deposits were sold to a newly created bank, Bay Bank, that now operates out of the defunct bank's two branches. Regulators couldn't find a buyer for Ideal's deposits, and its customers can collect their money in person at M&T; Bank's branch at 715 N. Howard St. through July 24. After that, unclaimed funds will be mailed to Ideal customers.
The fate of deposits becomes less certain when regulators can't find a buyer for a failed institution and a customer's account exceeds insurance limits.
FDIC spokeswoman LaJuan Williams-Young says the agency typically reimburses a customer 50 cents on the dollar of uninsured funds upfront. The customer then becomes a creditor of the failed bank. As regulators sell assets, the customer and other creditors will receive part of the proceeds. It can take years, and some might never be made whole.
That makes it all the more important to make sure you are fully insured at the start. Ninety banks have failed this year, and so have 10 credit unions. Maybe your lender won't join them, but why chance it?
Bank analyst Ely says no one can accurately predict failures all the time, and even experts can be surprised by failures caused by an internal problem that didn't show up on the balance sheet.
So, are you covered? If you have no more than $250,000 total in a bank, don't worry. But many people, especially those keeping retirement assets at a bank, can easily top that limit.
FDIC coverage is based on the type of account and ownership. (Credit unions offer similar coverage through the National Credit Union Share Insurance Fund.)
For a single account owner, the standard FDIC insurance of $250,000 covers checking and savings accounts combined. But if you also have a joint account with a spouse, then each of you is covered for up to $250,000 — or half a million dollars total on that account. Have an individual retirement account at the bank? An IRA is covered for up to another $250,000.
Coverage can add up, but it still might not be enough to fully protect your multimillions. Still, there's another way for millionaires to get full coverage — the Certificate of Deposit Account Registry Service. Basically, you put your millions in a single bank, which then deposits the cash into CDs at other institutions while making sure not to exceed FDIC limits. You'll receive a single bank statement, even though your cash is sitting in multiple banks.
The service is offered by more than 3,000 institutions, including 42 in Maryland. Find locations at http://www.cdars.com.
eileen.ambrose@baltsun.com
Are you covered?
Check to see whether your accounts are fully insured by calling the FDIC at 877-275-3342 or by using the Electronic Deposit Insurance Estimator at fdic.gov. The National Credit Union Administration offers a similar Share Insurance Estimator at ncua.gov.
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