The FDIC: What To Know & How To Take Advantage
Because the bank crisis is continuing we thought we would devote some space to the Federal Deposit Insurance Corporation.
The FDIC is an interesting and in many ways impressive government institution. It is almost exactly 90 years old and was founded in the years of the Great Depression to finally draw a line under the eternal problem of bank runs and the possibility of a small liquidity crisis in one bank snowballing and becoming a self-fulfilling prophecy of desperate depositors clamoring for their money back all over the country.
The FDIC are justly very proud that they have never failed to make a full payment of an insured deposit and have set up impressive and impressively quick systems for getting desperate people their money back as soon as possible. Their employees are sort of cool after a fashion.
They have a pretty good website and even a 1-800 number to call and ask questions (1-877 ASK FDIC). They also have a pretty helpful bank finder to see if your account and bank are insured.
All in all, a very useful and very smooth experience. If only the Affordable Care Act or the healthcare system at large worked as well.....
The trouble is, of course, hardly anyone ever uses these resources. Or didn't until now. And this speaks to one of the challenges for the FDIC in the modern era.
It has been so many years since a real (large) bank run in the US that people have sort forgotten about the FDIC and also stopped paying attention to the rules it very clearly lays down on its website and makes sure are publicly displayed in every insured bank around the country. It has just been so long since we had a 1930s style liquidity crisis where one bank, for reasons unique to its busy model, suddenly has a liability mismatch when too many depositors demand their cash back.
On the one hand most people have a vague idea that they exist and what they do. On the other, judging by the level of questions we received from our Pebble readership and in everyday life, people could use a refresher.
So, for posterity's sake here are the basics and please do go and talk to your personal banker
Everyone knows that you are covered up to $250,000. This is still, for now, the letter of the law though it has periodically been increased over time (the last time was .
It is important to note that this is $250,000 in aggregate. Splitting more between a checking and a savings account will not permit you to increase your coverage but there are other options that can.
For instance:
It is true that a joint account is, unsurprisingly, covered up to $500,000 or $250,000 per person.
This is an easy way for at least some people to get far more coverage and also reveals some of the many benefits that legally accrue to couples over single people.
Furthermore, the advantages for families don't stop there:
And, even less understood is the fact that you can open custodial accounts in the name of your children and get $250,000 per child, no matter how old.
So, it isn't too hard for the family of four to have quite a bit of cash locked up in FDIC insured accounts. It is a bit less clear that you should ever have this much cash just sitting in the simplest of accounts.
There are plenty of other types of accounts covered and special edge cases. For instance, trust accounts can get $250,000 per trust beneficiary.
Should you struggle to keep track of all this, the FDIC has a helpful calculator called EDIE that you can always use to try and figure out if you are safe across different institutions and account types.
Finally, it is both interesting and important that the FDIC covers ALL basic banking accounts. In particular it makes no distinction whether they are held by a US citizen or not, simply whether they are held by an individual. They also do not need to be a US resident either, for our foreign readers.
There are also other software services to help you split your money between different banks and different accounts for a small fee but you should likely not keep that much in basic bank accounts. There are other alternatives.
For example, and to conveniently end with a point we have made before in these pages, if ever confronted with a large amount of cash (perhaps you are preparing to buy some property, or move some money into an investment) there is another solution besides splitting it up between banks and bank accounts.
You can just buy a Treasury Bill.
A US government bond, any bond, is backed by the full faith and credit of the United States of America. That doesn't mean it is riskless, but it does mean that it is exceptionally safe and can be a very good port from stormy markets.
The nice thing about a Treasury Bill is that they are short term and the payout is fixed. Once you own it, you will receive the exact amount of interest stated.
That is particularly nice right now when you can receive a hefty (though declining) payout but it's always true that these are very low risk decisions if you find yourself heavily pressured.
We have written about Treasury Bills twice recently. Here is the most recent summary, if you missed it.
Thanks to the prompt and impressively serious action by the Treasury Department and other regulatory agencies, you may not need to do too much about your bank accounts (though that won't stop many people from re-examining their situation).
By all means do explore other banking options, if you feel unsure or anxious
But this might be a nice time to figure out how to buy Treasury Bills or take other evasive action with your brokerage account or bank, if you haven't already.
That might be a better use of your time and effort to improve financial knowledge.
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