As the financial bailout of certain banks spearheaded by the federal government gets under way, anxiety and unease about the current economic situation is running rampant. Financial institutions are being bought and bailed out, hundreds of thousands of people are losing their jobs every month, and the stock market is continuing to spiral downwards.
Last month alone, more than half a million people lost their jobs, raising the national unemployment level to 8.1%, the highest it has been since the early 1980s. As the recession firmly settles in, it’s natural to worry about protecting your financial assets in these shaky and uncertain times.
Video: The Economy Worsens
How to Keep your Money Safe if your Bank Fails
Most economic forecasters are not anticipating the failing of thousands of banks, as was seen during the Great Depression of the 1920s. Still, analysts are predicting that there will be many institutions unable to weather the storms brewing in today’s financial marketplace. But, despite this uncertainty, there are a few important facts to know regarding bank failures.
First, when a bank fails, the federal government will seize its operations in order for it to continue normal banking services in its community. In this situation (which is called a “conservatorship”), a bank’s regulator (in this case, the government) takes over control of the company and supervises its operations. This is done in an effort to maximize the bank’s value for a future sale (in addition to normalizing operations for customers). However, you will not receive any advance notice that your bank’s assets are being seized by the federal government.
It is important to remember that, when a government overtake occurs, customers will still be able to conduct normal banking activities and transactions. Examples of normal activities include using ATM/debit cards, writing checks, making deposits, and transmitting loan repayments.
Economists are quick to note that bank failings during this time of economic recession are expected to be rare. But even if they do, the government has enough in reserve to take control of those that do not make it. Most all banks are FDIC (Federal Deposit Insurance Corporation)-insured, meaning depositors’ accounts up to a certain amount are insured by the government. The FDIC has roughly $53 billion in insurance funds.
The current FDIC coverage amount through December 31, 2009, is $250,000 per depositor. This includes many retirement accounts, such as IRA(s) and 401(k)s. After the financial bailout led by the government, the FDIC-insured amount was increased through the December deadline. This was done for extra protection in light of the recession taking hold of the economy.
Video: FDIC Limits on Insurance
Be careful not to deposit more than this amount in any one particular bank because the extra amount above the coverage limit will not be insured in the case of the bank’s failure. Also, be sure to double check that your banking institution is FDIC-insured. Most are, but some are not, so this is an important factor to look for when choosing a financial institution to hold your money.
