'Is My Money Safe In A Bank?'

NPR's Scott Simon talks to Gail MarksJarvis, personal finance blogger for the Chicago Tribune, about her recent post, "Is my money safe in a bank?"

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SCOTT SIMON, host:

All the tough economic news about foreclosures and collapses have inspired a lot of Americans to finally read the fine print at the bottom of their banking statements to find out what they've been promised or what they have to watch out for. Gail MarksJarvis writes a personal finance blog for the Chicago Tribune. She's been fielding an awful lot of basic banking questions this week. Miss MarksJarvis joins us from member station WBEZ in Chicago. Thanks very much for being with us, Gail.

Ms. GAIL MARKSJARVIS (Personal Finance Columnist, Chicago Tribune): It's great to be here.

SIMON: We've seen images this week of IndyMac customers waiting in lines to withdraw funds under police supervision. Inevitably, those images stir up the kind of sepia-toned photographs we've all seen at the Depression. Are banks the safest place for your money right now?

Ms. MARKSJARVIS: Banks are still a safe place for your money, as long as you pay attention to following the rules so that you have the insurance that the FDIC provides. Even if the bank goes under, your money is just fine.

SIMON: Well, up to a certain limit, though, right?

Ms. MARKSJARVIS: That's correct. So if you're an individual, your money is protected up to 100,000 dollars.

SIMON: Is that 100,000 dollars per family, per person - what is it?

Ms. MARKSJARVIS: It's 100,000 dollars per individual. Now, if there's a couple and they have a joint account, then they're covered to 200,000. Or say, for example, you're an individual and you have your child on the account with you. Again, you're covered to 200,000. And if you had an IRA, that would be covered to 250,000.

SIMON: What does someone like Donald Trump do? Keep 100,000 dollars in 50,000 banks?

Ms. MARKSJARVIS: Well, that's what you can do. You can have multiple banks. But frankly, most of us shouldn't have hundreds of thousands sitting around in a bank because when I'm talking about the insurance, I'm talking about savings accounts, checking accounts, CDs. Most of us need more diversified investments than that. Incidentally, if you have money in a bank and it's in mutual funds, those are not insured.

SIMON: Oh, that's important for people to hear.

Ms. MARKSJARVIS: That's right. In a bank, it's the traditional banking services that are insured, the checking account, the savings account, the CDs.

SIMON: What about if you have your money in a foreign bank?

Ms. MARKSJARVIS: A number of countries throughout the world - and you can actually get the list on the FDIC site - many of those countries have very similar rules to the FDIC. So again, it may not be 100,000 dollars protected by insurance. You should double-check. But the chances are that if you're in a developed country, your money is probably protected.

SIMON: Some banks are riskier than the others, though, aren't they?

Ms. MARKSJARVIS: Yes. Right now a number of banks are under pressure because they're so exposed to mortgages. And one way you can tell is if a bank is offering a higher interest rate on CDs or savings accounts than the bank down the road. The reason they do that - and IndyMac Bank was one of those banks. They were doing it because they desperately needed deposits because they were having some financial trouble.

SIMON: Can the FDIC afford to handle more bank failures? It's got a limit at some point, doesn't it?

Ms. MARKSJARVIS: That's one of the questions I'm being asked most often. The FDIC so far says that they're very capable of handling what they think is on the horizon right now. They have a list of 90 banks that they are watching because they think there's some level of insecurity there. They do not make that list public.

And the reason, when you think about it, it makes sense. If they did make it public, we'd all get nervous and we'd go down and we'd pull our money out and there'd be a run on the bank, and that would actually cause failures. But the FDIC has about 53 billion dollars that can go to covering these factors. And let's just say it got really bad. The government steps in and backs it up. They can sell bonds or in the worst-case scenario, they could raise taxes to cover it.

SIMON: Gail MarksJarvis writes the blog, "On Money," for the Chicago Tribune. Gail, thanks so much.

Ms. MARKSJARVIS: Thank you.

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Banking On The Safety Of Deposits

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The collapse of IndyMac, the fifth FDIC-insured bank to fail this year, has heightened fears that more bank failures may be on the way.

IndyMac, which reopened on Monday as IndyMac Federal Bank, went under last week because of the excessive number of risky mortgage loans that it held.

Customers lined up early Monday morning to withdraw cash, but for some that meant taking home something less than what they had originally deposited. Here, a look at some of the questions raised by IndyMac's failure, including what deposits the federal government insures, and what other banks may be at risk.

Does IndyMac's failure mean my bank is at risk?

Probably not. IndyMac was in an unusual situation because it had an "extremely risky" exposure to assets, says Stuart Plesser, a banking analyst for Standard and Poor's. "Their specialty was no document or low-document loans," he says — meaning borrowers didn't need much proof of income to get approved. Most banks hold a more diversified portfolio of loans, he adds.

And although five banks have failed this year, that number is tiny compared to the height of the savings and loan crisis, when 534 banks closed in 1987, according to FDIC Chairwoman Sheila Bair.

Still, Standard & Poor's has a negative outlook for banking stocks, which have not performed well: Various bank indexes are down more than 50 percent from a year ago, Plesser says.

"The chance that your bank is going to fail is very remote. The overwhelming majority of banks are quite healthy in this country," Bair told NPR. "Even if your bank does fail, your insured deposits will be there for you."

The American Bankers Association says that banks are well positioned to handle the economic downturn with a buffer of $1.48 trillion, including reserves and cash, to hold as operating capital.

Have there been mass withdrawals from other banks?

Not in the United States. But the credit crisis has prompted some banks to issue statements about their capitalization levels — in other words, how much cash they have on hand to fund operations — in an attempt to calm both depositors and investors.

How many more banks are at risk of failure?

The FDIC has identified 90 banks as "problem institutions" that are at risk of failure for the first quarter of 2008. "That number will go up," but historically, only about 13 percent of banks on this list typically fail, says the FDIC's Bair.

What deposits are insured by the FDIC?

A depositor with any type of account at an FDIC-insured bank or savings and loan is fully insured for up to $100,000 per bank. It's possible that a depositor could have more than $100,000 insured if he or she has a joint account or one of seven other legal ownership arrangements. (Get details on insured accounts.) All types of individual retirement accounts are also insured for up to $250,000.

Are money market funds insured?

Not by the FDIC. However, many money market funds invest in Treasury notes and government agency bonds, which are backed by the full faith and credit of the U.S. government. This means that investors are guaranteed that they will be paid back in full.

This category typically also includes bonds issued by Fannie Mae and Freddie Mac, the two housing finance giants that are the subject of a rescue plan announced by the Treasury Department earlier this week. Money market funds may also invest in municipal bonds backed by state governments, short-term notes issued by corporations or in CDs.

Since 1983, when the SEC revised its rules governing money market funds, there has been only one instance of a money market fund paying investors less than the principal they invested, according to the Investment Company Institute (ICI), a trade association for U.S. investment companies. That instance involved institutional — not individual — investors.

How have IndyMac customers fared?

More than 200,000 customers had a complete guarantee and have had virtually uninterrupted access to their money since the failure of the bank, says Bair.

The FDIC says IndyMac had close to $1 billion of "potentially uninsured deposits," held by 10,000 customers. The agency said that as it sorts things out, it will pay customers with such deposits an advance of 50 percent of the uninsured amount and ultimately, customers may lose between 10 to 20 percent of their uninsured money.

With additional reporting by Michele Norris.

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