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 the banks are concerned.
For those who say they aren't worried 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.
