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Is My Bank FDIC Insured?

2012 May 30
by Charlie

Very few people – when they open up a bank account – look at whether or not a bank is FDIC (Federal Deposit Insurance Corporation) insursed. Do you ever notice this little sticker on the front of the door when you walk into the bank? Probably not. More than likely you choose your bank because it was close to your home or your friends recommended it. But have you looked at whether your bank is FDIC insured? Especially, if there is news headlines like this stating “runs on the Greece banks have begun” or “Biggest Greek bank warns of dire euro exit fallout.” 


Since Greece is going through a lot of turmoil in their involvement with the Euro it is an appropriate time to look at whether your bank is FDIC insured. But first lets look at a brief history of how the FDIC came about.

History

The FDIC was started on June 16, 1933, by President Franklin D. Roosevelt during the height of the Great Depression to help keep confidence in the banks. Individuals, prior to 1933, had no insurance as to their deposits in the banks, and could not be guaranteed that the banks would have available cash to pay their deposited money. The banks had a fraction of their investors cash readily on hand, because it had all been lent out to individuals & corporations in the community.

The FDIC insurance thus forces banks to have at least 10% of their client’s cash on hand at any time to remain in good standing with the “temporary government corporation”. Banks today fall into the following five categories based on their capital ratios.

  • 10% or greater – Well Capitalized
  • 8% or greater – Adequately Capitalized
  • Less than 8% – Undercapitalized
  • Less than 6% – Significantly Undercapitalized
  • Less than 2% – Critically Undercapitalized

All FDIC banks are regularly audited to ensure they comply with these regulation limits or risk getting shutdown.This even happened to one of our local Omaha banks, Mid City Bank, in November 2011. The Mid City Bank closure ended up costing the FDIC about $12.7 million, which is paid by the premiums of all FDIC insured banks. For a complete list of all failed banks since October 1, 2000 visit the FDIC Failed Banks List.

Interesting Fact: Since 2000 there has been 465 bank failures. 428 of these failures have occurred since September 2008! That is an alarming statistic, which I really never realized!

Does FDIC insurance really matter?

The government created the FDIC government corporation to provide “trust” in our financial institutions, because of all the bank runs during the Depression. People would have much rather earned 0% interest under their bed mattress than trust their local mom and pop bank. Once the government intervened, it slowly helped bring bank customers to make deposits that banks could lend out in mortgages and other lines of credit.

The question that needs to be considered today though is…”What if the government fails?” What happens to my FDIC insurance if the entire country fails? I pose this question, because with Greece on the verge of either default or exiting the Euro it makes me wonder about the US’s sustainability. Do you ever think about this?

Ultimately, if I look at a where the US is headed fiscally with the government owing $15.7 TRILLION it looks unstainable. Recently we just passed 100% GDP to Debt Ratio, which is a tipping point that would be hard to recover from. What that means is that our interest payments alone will soon be unsustainable compared to the Gross Domestic Products we quantitivately produce. So what does that mean for you and your family? My advice to you…

Financial Tip: Create no single point of failure for your family’s finances! Have multiple banks accounts at different FDIC insured banks.

Recently, my family and I opened up a second checking account for this very reason. We didn’t want to look back (if there is another depression/bank run) and think…”why did we have all our money in one bank?” What if your local bank fails? How quickly could you get access to your money? If another Great Depression happened again would you be able to survive with cash on hand?

Is my bank FDIC insured?

Ultimately though, the first question you need to ask yourself  before opening a checking or saving account is…“is my bank FDIC insured.” The FDIC offers a great search tool on finding out if your banks is covered or not. Check it out! It might help you out like it did the Mid City Bank customers in Omaha.

Closing Comments/Questions

I don’t know if many of you have had a chance to read a lot of the headlines on Greece’s debt problems, but my assumptions are that by June 17th major events as to the future of Greece and the Euro will be decided. My questions to all our readers are:

  • Have you been reading the headlines about Greece? Are you concerned?
  • What do you think will happen if Greece defaults?
  • What do you think will happen if Greece leaves the Euro?
  • What are you doing to prepare if there are problems in the financial markets?

I’d love to hear from our readers!

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Charlie

An IT professional, Charlie also buys and sells liens, lives on the cheap, runs marathons and helps to run his family farm. In his spare moments, he raises 3 children, does the dishes and writes one post a week. His former blog, Frugal Retirement Plan, has been cited by US News and World Report.

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6 Responses
  1. May 30, 2012

    I’ve been reading about the situation in Greece, and the main issue I see is that the country has spent too much. Now they’re having to deal with it within the bounds of the EU, whereas before it would have been on their own terms. The citizens aren’t in agreement with the Greek government, which creates a rift moving forward. The government is going to have to come up with a plan that works for both the Greek people as well as Greek stakeholders.

  2. May 31, 2012

    I think it’s importantto note that since inception, no depositor has ever lost a penny of their deposits that was FDIC insured. It’s also important to note that the FDIC insurance fund money does not come from the government or taxpayers; rather it comes from the nearly 8,000 banks that pay into the fund every quarter. Funds are insured up to $250k per person per bank. So if you and your spouse have a joint CD, it’s insured up to $500k.

    As far as the government failing… I really don’t think you have to worry about that in the US. Its true that we certainly have a challenge ahead of us with our deficit spending and fiscal mismanagement. We probably will experience more turbulence in financial markets if nothing is done to address our country’s issues. But I don’t think we’re going to have a complete economic collapse.

  3. May 31, 2012

    Justin – you are correct about everything you said in your first paragraph. The big contention I have is how will the US ever be able to payoff or down their deficit. Greece is at about 150% GDP to Debt ratio, we (USA) are at a tipping point (100% GDP/Debt) to where we will soon not be able to produce enough goods/services to pay the accruing interest payment. Grant, I don’t think the US is in an immediate financial collapse danger, but watch what is happening in Europe closely. The exit of the Euro by Greece, and the banks runs that are happening in Spain now over the past week ($82 billion withdrawn) will have a domino effect on the world economics. Just like the mortgage crisis had a ripple affect in 2008 on the world, I think the Euro problem with have an equal, if not greater impact, than that. What are your thoughts?

  4. June 1, 2012

    I don’t doubt at all that big changes are necessary by the US government to stop deficit spending. Maybe I’m too optimistic. I know nothing will happen this year due to the elections, so any change would be next year at the earliest. But the golden lining from the turmoil in Europe is that it drives investors into US treasuries and keeps our borrowing costs lower and lower.

    And one major difference is that the banking industry in the US is much more than that of Spain. Our banks have higher capital ratios, and deposit levels have actually been growing here in the US rather than experiencing runs on the banks.

    All in all, I’m not arguing that the future is rosy. I just think that catastrophe will be prevented.

  5. June 1, 2012

    I like your thinking, Ryan! You make some great points too.

    I agree that there will soon be a silver lining in the Euro crisis in driving down lending rates in the US. What you will see, and are seeing, is investors flood to the dollar or US treasuries. But how long will people be willing to earn 1% – 3% on their invested dollars? I could forsee the flood to US dollar/treasuries occurring for 1-3 years. In addition, if we see Europe fail/failing, then that will impact US exports. Thus US will experience another recession. During this my question is what “bullets in the gun” does the Fed or Treasury have in there back pocket? QE3 (more printing money to buy US bonds)? They can’t lower interest rates any more…then what other choices are there? I think the playing field is a lot different than in 2008, because the Fed had a lot of options at their disposal.

    At the end of this what do I see 3-4 years out? SEVERE INFLATION. That is just my two cents, but again would love to hear yours.

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