Ensure You Are FDIC-Insured

Although I believe that FDIC insurance will ultimately prove worthless, that moment is probably some years away.

In the meantime, it makes no sense whatsoever to deposit more than the FDIC-insured limit in any one bank. That is just asking for trouble, especially given the fact that things are only going to get worse as far as banks are concerned.

For those who profess to be relaxed about such things, let the following post from the Bank Deals blog, "$400,000 of Deposits at a Failed Bank, First-Hand Experience at ANB Financial," be a warning.

One of this blog's readers was a depositor at the failed bank ANB Financial, and he has emailed me his experience to share. I reported on this bank failure Friday after the FDIC sent out its press release. He and his wife had opened a $400,000 CD last summer at this bank. He thought he was covered since he was careful to open the CD in the proper ownership category. However, when he read about the bank failure on Sunday, it did ruin his weekened. What if there was some esoteric mistake in the bank's documentation that put the money at risk?

The good news is that his diligence when he opened the CD paid off. The $400,000 was insured, and they were able to receive the funds on Monday after several nerve-racking hours at the bank. Here is how he described this time:

We spent 3 hours there inside the bank calling various phone numbers and being mostly told, "the information you have received is erroneous." No one took any responsibility for getting the money to us. Finally, one of the FDIC team members inside the bank decided to personally intervene on our behalf. Within about 45 minutes, we had correctly navigated the maze and wire transfer form had been fax'd to the correct location and authority to effect the transfer.

The bad news is that the interest earned was not covered. The CD had earned almost $15,000 in interest, and this put the total amount above $400,000. The FDIC claims agent told them that they'll receive a "receiver's certificate" within 30 days and that they may someday receive something back.

Why have over $100,000 in one bank? Sometimes this happens when people just forget, and the money keeps growing until it exceeds $100,000. However, in this case the reader was taking advantage of a 5.82% APY CD special. I had reported on this special last September.

If you're going to take advantage of similar deals with deposits over $100,000, you should be interested in what he has learned. I describe these lessons below along with some other potential issues that I've learned over the last few years from other readers.

Be Very Careful When You Go Above $100,000

It's not common knowledge, but you can have over $100,000 FDIC insurance for a non-retirement account at one bank. The FDIC defines many different ownership categories. An account that falls into one of these ownership categories can have more than $100,000 of coverage if the account meets the applicable requirements. You should be very careful to ensure these requirements are met, and you shouldn't assume that your bank is taking care of this.

The ownership category that the reader and his wife used was a revocable trust account. This FDIC page provides the formal definition of a revocable trust account. A subset of this account is a payable-on-death (POD) account. The owner of a POD account is insured up to $100,000 for each beneficiary if 3 specific requirements are met. This FDIC page describes these requirements.

Account Title Requirement

The first of these 3 requirements can be problematic. The requirement states that the account title must include a commonly accepted term such as "payable-on-death," "in trust for," "as trustee for" or similar language to indicate the existence of a trust relationship. The term may be abbreviated (for example "POD," "ITF" or "ATF").

The problem is that banks often do not include the POD or similar term in the account title. This almost happened to the reader. Here's what the reader reported:

Because of your FDIC insurance warnings and advice we were VERY hardnosed about correctly titling the accounts. In fact, the bank almost refused to correctly title the two POD's but we told them we would "walk" if they didn't. They finally relented and titled them exactly the way they were supposed to be titled.

This seems to be a common problem among banks. Last year another reader reported having problems with Countrywide Bank. He had applied for Countrywide's Savingslink account, and in the application, he listed two beneficiaries. The problem was that these beneficiaries were not officially added to the account titled as POD's. So if you are depending on POD's to extend your FDIC coverage over $100,000, make sure you verify the proper account title.

What Happens if a Beneficiary Dies

In addition to the account title, there are also other issues that could reduce your FDIC coverage. If the POD beneficiary dies, the coverage is reduced immediately. Example #18 of this FDIC page describes this.

Joint Accounts and Signature Cards

Thanks to an investigation by another reader, I just learned of another potential issue that could reduce your FDIC coverage. This one involves joint accounts. As described at this FDIC page, a joint account for a husband and wife can qualify for $200,000 in FDIC coverage. Note the three conditions listed at that FDIC page which must be met. One of the conditions that applies to savings accounts states "Each co-owner must personally sign the account signature card." This concerned the reader when he had applied for an Indymac money market account since it can take several weeks before you receive the signature card from Indymac. The reader recommended that you stay under $100,000 during this period. Below is what he received from the FDIC:

If the joint account is opended as a Market Market Deposit Account (MMDA), then it is important to have all owners of the deposit sign the signature card, otherwise if the bank were to fail the FDIC could make the determination the account is insured under the single ownership category in your name only for up to a total of $100,000.

He was also concerned about online banks that do not require a paper signature card. According to the FDIC representative, "the attachment or use of an electronic signature does satisfy the FDIC requirements for deposits including joint accounts." So you should be safe with online joint money market accounts that only have electronic signatures.

Make Sure You Consider the Accumulated Interest

Unfortunately, the reader with the ANB Financial CD may lose the interest he earned. He had let the interest be added back into the principal of the CD, and the total balance exceeded the $400,000 insured limit.

If you specify that interest payments are to be added to the principal, make sure the total amount will always remain under the insurance limit during the entire CD term. Most banks also allow you to withdraw interest without penalties. Another option is to specify that interest be paid to you by check or be transfered to another bank.

Monitor Your Banks

One more lesson the reader mentioned was to carefully monitor your bank's condition. This is a good idea, but I wouldn't recommend this as an alternative to maintaining deposits under the FDIC limits. The bank's financial data that is publicly available is often at least 3 months old. The safety ratings issued by Bankrate and BauerFinacial are even older than this. You may be able to pick up on other clues that show the bank is in trouble, but these signs can be easy to miss.

Summary

In summary, the reader provided the following lessons learned which sums up many of the above details:

• Be a bulldog on FDIC requirements for account titling. Do NOT take the word of any CSR such as "Don't worry, it's OK." Make certain the accounts are titled exactly as required.
• Monitor your bank's evolving condition.
• Withdraw interest at every available opportunity and put it somewhere else. Whatever little pittance you might gain through compounding pales in comparison to the total loss of your interest!

For more information and links on FDIC coverage and on NCUA coverage for credit unions, please refer to my post from last year. I have a short list of important FDIC and NCUA links in this post.

Thanks to this reader who emailed me his experience with ANB Financial. Also, thanks to the reader who informed me about the Joint Account issue, and other readers who shared their experience on FDIC insurance issues.

Comments

[roger]

good info.thank you it very much appreciated

[John]

I know you say that you should be sure to be FDIC insured...Would you extend this requirement to Asset Managers (Fidelity, American), Discount Brokers (TD Ameritrade, Schwab).

[FB]

John: Your question makes no sense. Those aren't banks. What do you mean?

[ddk]

I think he is referring to the unlikely-but-possible scenario that an asset management firm goes bust. "What happens to the zillions of dollars in their money market funds, which many people use as savings accounts?" My assumption is that, since funds are pass-throughs for underlying assets, whoever buys the defunct manager's "assets" (accounts) takes over the funds, which would make a money market fund actually safer than a savings account if it weren't for the FDIC. But then....if the asset manager went down HARD, could the bankruptcy court argue that the funds were owned by the firm, not the customer, and are seizable assets?

Meh....unlikely scenarios...but not impossible, I suppose.

[Boom2Bust.com]

Great post, Michael. I've always been wary of the FDIC program ever since I read the following passage from Robert Prechter's "Conquer The Crash":

Second, did you know that most of the FDIC's money comes from other banks? This funding scheme makes prudent banks pay to save the imprudent ones, imparting weak banks' frailty to the stronger ones. When the FDIC rescues weak banks by charging healthier ones higher "premiums," overall bank deposits are depleted, causing the net loan-to-deposit ratio to rise. This result, in turn, means that in times of bank stress, it will take a progressively smaller percentage of depositors to cause unmanageable bank runs. If banks collapse in great enough quantity, the FDIC will be unable to rescue them all, and the more it charges surviving banks in "premiums," the more banks it will endanger. Thus, this form of insurance compromises the entire system. Ultimately, the Federal government guarantees the FDIC's deposit insurance, which sounds like a sure thing. But if tax receipts fall, the government will be hard pressed to save a large number of banks with its own diminishing supply of capital. The FDIC calls its sticker "a symbol of confidence," and that’s exactly what it is.

[Yolanda Gibson-Michaels (FDIC Whistleblower)]

TRUST. YOUR MONEY IS NOT SAFE!! READ FULL REPORT AT LULU.COM BOOK ENTITLED: CAUGHT IN A WEB OF BUREAUCRACY (539 page disclosure report of FDICs reported fraud on dvd, book, copywrtten at the library of congress) See Gibson-Michaels vs FDIC 06-cv-1940.

FDIC Whistleblower
Related To NSA
Classified Docs Case

By Wayne Madsen
12-17-5

WMR has discovered there is much more to the government's harassment of Kenneth W. Ford. Yolanda Gibson-Michaels, Ford's second cousin, to whom he is close, filed major fraud and conflict of interests charges against Donald E. Powell, the chairman of the Federal Deposit Insurance Corporation (FDIC) and a close political ally and friend of George W. Bush who served as President of First National Bank of Amarillo, Texas and Chairman of the Board of Regents of Texas A&M University.

Gibson-Michaels, a whistleblower who worked for the FDIC Legal Division, uncovered fraud involving senior FDIC officials and scandals involving Bank Hapoalim of Israel, Bank Leumi of Israel, Russian-Israeli mob figures Vladimir Guzinsky and Arkady Gaydamak (a financial partner of Cheney while he was at Halliburton), Bank Leumi's Chairman Eitan Raff, SunTrust Bank of Florida (the bank from where the FBI's confidential informant Tonya Tucker (who stung Ford) received checks while she was in the Washington area, the Washington Field Office of the FBI, illegal Congo diamond trading involving DRC Resources Corporation, massive overcharging of the FDIC by outside counsel law firms, Saudi lobbyists in Washington, the Wells Fargo-Tejas merger, Tyco International, Enron off shore entities, and Halliburton. WMR will bring more details about this massive fraud involving the FDIC, described as a $3 trillion slush fund for Bush, Cheney and their business friends and associates around the world.

Considering Ford's cousin's high profile FDIC investigation (also involving Securities and Exchange Commission probes) of politicians and businessmen connected to Bush, Cheney, and Israeli interests, perhaps David I. Salem, the U.S. Assistant Attorney who was so quick to see Kenneth Ford sent to prison, should also have any of his possible connections to the Bush White House, the GOP, and Israel thoroughly investigated for potential conflicts of interest and criminal conspiracy. (TRUE STORY SUPPORTED BY EVIDENCE)

Hamilton Bank, Ex-CIA
Operatives, & 9-11 Hijackers
By Wayne Madsen
1-26-6

Researchers and investigators have uncovered links between a Miami bank that collapsed in 2002 amid a fraud scandal that was highlighted by billions of dollars in questionable cash and fraudulent loans and money movements linked to the Bush family and businesses linked to funding pilot training for the 9-11 hijackers.

After the collapse of Hamilton Bank of Miami, the Federal Deposit Insurance Corporation (FDIC), an entity that WMR has reported has been transformed by the Bush administration from a regulatory agency into an investment center, and the Israel Discount Bank assumed liability for the insured accounts. The FDIC assumed liability for half the accounts and the Israel Discount Bank took over the other half. Three Hamilton branches were reopened by the Israeli bank as "IDC." Insiders report that Hamilton Bank was involved in joint (and possibly rogue) U.S.-Israeli intelligence and money laundering operations.

In 2002, The Miami Herald reported that bags of cash from Latin American political leaders would routinely be flown to Hamilton Bank for money laundering. The Herald reported that one of Hamilton's customers was then-Panamanian President Mireya Moscoso. Hamilton maintained an office in Panama. According to court documents filed by the Office of the Comptroller of the Currency, Hamilton's dubious loans to Maximo Haddad, the owner of the Mexican construction firm PYCSA that built a private toll road in Panama and the owner of two offshore companies, Perpetual International Holdings and Alderly Management; Manuel Cohen, the Panamanian Consul General in Miami and the managing director of Alexander H Finance Co.; failed banks in El Salvador and Ecuador; Metrobank International (Vanuatu); Metrobank Panama, and a Florida drapery and window covering firm with subsidiaries in Texas, Venezuela, Brazil, El Salvador, Australia, Mexico, Spain, and Puerto Rico "appeared to have no legitimate business purposes.'' Hamilton Bank has been described by intelligence insiders as a front operation for intelligence-related activities that may include, in addition to money laundering, weapons and drug smuggling.

Now defunct Hamilton Bank: Interesting clients As previously reported by WMR last July (Intelligence Whispers), "In 1995, a $10 million transfer was made to Houston. The source was the Saudi Royal family. The funds were transferred to Nations Bank via Banca Svizzera Italiana via SWIFT. On September 28, 1995, a $50,000 check was cashed at Nation's Bank of Pasadena, Texas. It allegedly originated from the $10 million of transferred funds from Saudi Arabia and the payee was "Fayyaz Ahmed." Fayyaz Ahmed, aka Fayez Ahmad, was also named as one of the hijackers aboard United 175 that crashed into the South Tower of the World Trade Center . . .

The account from which the $50,000 was paid was in the name of Treatment Services of the Southwest Corporation, 14359 Torrey Chase Blvd., Suite D Houston TX 77014-1635, in North Harris County --check number 266-406556-1; Tax ID # 76-0455993. Much of the funds eventually ended up in Phoenix, later the location of some of the 911 hijacker trainees.

Ahmad also used the aliases Banihammad Fayez Abu Dhabi Banihammad, Fayez Rushed Ahmed, Banihammad Fayez, Rasid Ahmed Hassen Alqadi, Abu Dhabi Banihammad Ahmed Fayez, with the FBI officially tagging him as one Fayez Rashid Ahmed Hassan al Qadi Banihammad. Fayyaz Ahmed had been a resident of Delray Beach, Florida. The FBI later said that the "Fayyaz Ahmed" who cashed the check in Pasadena was merely a student paying for college tuition but the note on the check states "contingent for travel expenses." Dallas, Texas was also one of the locations used by the hijackers for flight simulator training. One of the flight training "tasks," the hijackers trained to do was to maneuver planes between World Trade Center 1 and 2.

According to information recently obtained by WMR, the facts about the money transfer are maintained in the Superior Court of Arizona, Maricopa County, "In the Matter of the Proceeds of Account 41C-07029 RDC Holdings Co. , Inc." The FBI in Arizona has investigated the case but may be under pressure not to follow certain leads that could lead to the Bush family and their business associates.

According to a source close to the case, the $10 million was moved from Bluelake World SA, a Switzerland-based firm, via Topaz Liberty and Andromeda International (both Panamanian firms), to the account of Southwest Services of Houston, the account from which Fayyaz Ahmed was paid $50,000.

Another intermediary for the funds transfer was reportedly Hamilton House of Nassau, Bahamas, a possible off-shore entity of Hamilton Bank in Miami. The financial network that moved the $10 million to Arizona and Texas reportedly has close links to Potomac Capital, a Geneva-based entity set up by CIA Director George H. W. Bush in 1976.

The Bush financial networks involved with Metrobank and Hamilton also involve the entry of illegal foreign money into the 2004 Bush-Cheney campaign. See November 2004 article.

This letter, sent to the Senate and House Intelligence Committees' ranking members, is also germane to the issue of U.S. support for Saudi terrorists. (TRUE STORY SUPPORTED BY EVIDENCE)