During recent testimony, Chairman Bernanke predicted that there could be a rise in the failure rate of small banks. This comes because many of these small banks may have invested in areas where prices have fallen dramatically and are suffering losses associated with the subprime mortgage fiasco. What happens to the money that you have on deposit in these banks if they go belly up?
Federal Deposit Insurance Corporation
The FDIC protects your deposits up to certain limits should the bank fail. So, you don't need to rush out and withdraw you money from these small banks. However, you need to make sure that your deposit accounts are appropriately structured and that the bank IS in fact insured.
Look for this logo to be sure that your bank is insured:
Types of deposits that are insured by the FDIC are; checking accounts, savings accounts, trusts, CD's, and, IRA's. Note that the maximum insured balance per account is $100,000 (Federal Law provides up to $250,000 coverage for certain IRA's). So, if you have a savings account with $137,000, only $100,000 of it is insured, the remaining balance is at risk.
How do you protect the entire amount? This from the FDIC Publication Your Insured Deposits "Deposits maintained in different categories of legal ownership at the same bank can be separately insured. Therefore, it is possible to have deposits of more than $100,000 at one insured bank and still be fully insured."
There are eight ownership categories recognized by the FDIC which have certain requirements that will allow you to insure more than $100,000. Click on each for more information.
* Single Accounts
* Certain Retirement Accounts
* Joint Accounts
* Revocable Trust Accounts
* Irrevocable Trust Accounts
* Employee Benefit Plan Accounts
* Corporation/Partnership/Unincorporated Association Accounts
* Government Accounts