Federal insurance still protects bank deposits
Being a part of the Vail Chamber & Business Association board has provided me an opportunity to comment on a subject all of our members have an interest in: FDIC insurance. The past six months have seen drastic changes in the financial world. Company failures, market failures and personal failures seem to greet us each day in the news. Some have been directly impacted by the news, others only slightly. One area of concern for nearly everyone has been changes in FDIC insurance coverage. FDIC, or the Federal Deposit Insurance Corp., provides insurance to banks in the United States on their deposits up to certain dollar amounts. As many know, there have been some changes to the insurance amounts, which will remain in effect through Dec. 31.
The 200-year history of banking in the United States has been filled with successes and failures. Dating back to the founding of our country, the banking industry has mirrored the country with the debate regarding power between local state banks and national banks. What is known as the First Bank of the United States was chartered in 1791 and is located in Philadelphia. Among other goals, the bank attempted to unify the countrys currency and establish financial order and consistency. This charter and bank lasted for 20 years, until 1811.In 1816, the Second National Bank of the United States was charted and had many of the same goals as the First Bank of the United States. This bank operated for 25 years and ceased operations in 1841.Dating back to 1829, there were myriad deposit-insurance programs offered by different states, with the same goal in mind to protect the economy from the disruption of bank failures and protect depositors money. Between 1886 and 1933, some 150 proposals for deposit insurance or guaranty were offered to depositors.Between the stock market crash of 1929 and 1933, approximately 9,000 banks suspended operations, resulting in $1.3 billion in depositor losses. The FDIC reports that 4,000 banks closed in the first few months of 1933, ultimately leading to the Banking Act of 1933. This act established the FDIC, insuring depositers money and restoring confidence in the banking industry. The new law stemmed the tide of bank failures. Between 1934 and 1941, 370 banks failed.
FDIC insurance coverage started at $2,500 per account in 1934. Over the years, the insurance coverage amount increased. It changed from $40,000 to $100,000 in 1980. At the start of 2006, President Bush signed the Federal Deposit Insurance Reform Act of 2006, which increased insurance coverage up to $250,000 for certain retirement accounts. In October, President Bush signed the Emergency Economic Stabilization Act into law. This temporarily increased the FDIC insurance limit to $250,000 for all account types until Dec. 31 of this year. What do these changes mean? Ill address these changes in context of a standard individual checking account and business account. Individual accounts: There are many nuances when it comes to individual FDIC insurance. Account titling, account ownership and beneficiaries all work into determining how the accounts qualify for insurance. Generally speaking, an individual account will now qualify for insurance up to $250,000. Joint accounts can qualify for up to $500,000 and Revocable Trust Accounts (accounts which name a beneficiary) can qualify for $250,000 per beneficiary. This allows for individuals to set up separate accounts, list separate beneficiaries and receive more than the standard $250,000 of insurance. Also, banks may participate in the governments Transaction Account Guarantee Program. This program currently provides unlimited FDIC insurance for certain non-interest-bearing accounts. Non-interest bearing has a unique definition to the government and may actually allow accounts to earn a small amount of interest and still qualify.All qualifying accounts under this program receive unlimited FDIC insurance, protecting the full balance deposited to the account. This program is scheduled to expire on Dec. 31. I strongly encourage a discussion with your bank representative for specific needs or questions. Business accounts: For the most part, business accounts qualify for FDIC insurance up to $250,000, the same as an individual account. If your business account doesnt earn any interest and your bank participates in the Transaction Account Guarantee Program, the FDIC insurance is currently unlimited. Other bank instruments, such as certificates of deposit, have other protection and insurance programs. It is best to discuss these with your local banker. The government has acted quickly and decisively to bring stabilization to the protection of your money (albeit temporarily). Many Vail Chamber & Business Association members have had good questions about the safety of their local banks and FDIC insurance. Educating yourself about the changes, or at the very least being aware of these changes, is a smart decision. For more information, I suggest visiting the FDIC Web site http://www.fdic.gov and talking to your local banker. For information about the safety of your local bank, http://www.bankrate.com also is a useful resource. For any questions, you can reach me at the Vail Chamber & Business Association at 970-477-0075.Michael Glass, of Alpine Bank, is a member of the Vail Chamber & Business Association board of directors.