Posted: August 14th, 2008 | Author: Joe | Filed under: Economy, Insurance, Saving | Tags: Economy, FDIC, Insurance, Savings | 3 Comments »
True or False:
Federal Deposit Insurance Corp. is only obligated to pay off 7% of the value of my deposits and that it has 99 years to pay off the balance.
I stumbled onto this recently and it caught my attention. There’s a great deal of misinformation and confusion about FDIC insurance coverage and limitations. And, of course, with the list of failed banks growing monthly there’s also a lot of panic about what “FDIC Insured” really means.
The answer to the question above is False (see Myths # 3 and #4 below), but how many people knew that? I went digging and found an article on the FDIC website itself that details many “mythconceptions”, if you will. You can read the whole article here , but this is a quick overview.
Myth 1: The most a consumer can have insured is $100,000.
This is based on the misconception that the FDIC has knowledge of all bank accounts a person has. This is simply not true.
“The reality is that your accounts at different FDIC-insured institutions are separately insured, not added together, and you may qualify for more than $100,000 in coverage at each insured bank if you own deposit accounts in different “ownership categories.”“
So, if you have $100,000 in an individual ING savings account (which is FDIC insured) and you have another $100,000 in a joint checking (FDIC insured) account at HSBC, then you are actually covered for $200,000. The individual and joint account types are considered”ownership categories.”
It’s even better than that:
““Depending on the circumstances, a family of four could have well over $1 million in deposit insurance coverage at the same bank,” said James Williams, an FDIC Consumer Affairs Specialist. “And that coverage is separate from what is protected at any other FDIC-insured institution.”“
So, you could have $100,000 insured at your ING savings account AND another $100,000 insured at your HSBC savings account. Why anyone would want that much in a savings account is another topic…
Myth 2: Changing the order of names or Social Security Numbers can increase the coverage for joint accounts.
“Many depositors mistakenly believe that by changing the order of Social Security Numbers, rearranging the names listed on joint accounts, or substituting “and” for “or” in account titles, they can increase their insurance coverage.”
I’ve never heard of this one, but it doesn’t surprise me. I think it’s rooted in the thinking that the government deals in detailed legalese much of the time, and that if you know the system you can get around the limitations by exploiting the loopholes.
According to Kathleen Nagle, chief of the Deposit Insurance Section in the FDIC’s Division of Supervision and Consumer Protection:
“These moves will have no impact on joint account coverage.”
Myth 3: If a bank fails, the FDIC could take up to 99 years to pay depositors for their insured accounts.
Not only is this entirely false, but it appears to be a common tool of deception used by sales people to steer clients away from FDIC insured products.
“Historically, the FDIC pays insured deposits within a few days after a bank closes, usually the next business day. In most cases, the FDIC will provide each depositor with a new account at another insured bank. Or, if arrangements cannot be made with another institution, the FDIC will issue a check to each depositor.“
We’ve seen this recently with the IndyMac failure. The FDIC assumed control over the weekend and by Monday, checks had cleared and people’s deposits were available – even up to half of uninsured deposits. All in all, a fairly smooth transition considering the circumstances and initial panic.
Myth 4: The FDIC only pays failed-bank depositors a percentage of their insured funds.
The FDIC site says this is often peddled with Myth #3 by those afore mentioned unscrupulous sale people.
From the article:
“Federal law requires the FDIC to pay 100 percent of the insured deposits up to the federal limit – including principal and interest. If your bank fails and you have deposits over the limit, you may be able to recover some or, in rare cases, all of your uninsured funds. “
It also states:
“However, the overwhelming majority of depositors at failed institutions are within the insurance limit, and insured funds are always paid in full.“
This makes sense. You’ve got to figure that most people either have no where near $100,000 in assets to be protected by FDIC insurance, or they are financially savvy enough that they have that money at work in uninsured assets, like investment accounts, real estate and personal businesses.
Myth #5. Deposits in different branches of the same bank are separately insured.
This is like a cousin to Myth #1.
“FDIC insurance is based on how much money is in various ownership categories (single, joint, retirement, and so on) at the same insured institution. It doesn’t matter if the accounts were opened at different branches – they are considered the same bank for insurance purposes.“
It’s all in the category (account type) and institution folks.
Myth #6. Any product sold by a bank is insured by the FDIC.
Banks sell all kinds of financial products. CDs, checking and savings accounts are FDIC insured, stocks, bonds, and mutual funds are not. It’s important to know the difference. If you don’t know, ask. You can contact the FDIC itself at their website as well.
Myth #7. Each beneficiary named on an IRA (Individual Retirement Account) increases the FDIC insurance coverage.
The truth:
“No, the number of beneficiaries on an IRA does not affect insurance coverage. This misconception appears to be based on confusion with the rules for per-beneficiary coverage of revocable trust accounts“
Well, that’s the first 7 Myths. There are 3 more at the website , but they deal mostly with trusts which is not really my forte.
Hopefully this was helpful, and maybe you learned a few things. I know I did.
Technorati Tags: FDIC, failed banks
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Posted: August 12th, 2008 | Author: Joe | Filed under: spending | Tags: Bankruptcy, Gift Cards, Sharper Image | No Comments »
By now, you probably already know that many gift cards charge a fee against the unused balance if the card is not used by a year after purchase. But the recent bankrupting of Sharper Image shows a new peril with giving the gift of card.
Specifically, what happens to the card holder if the company files chapter 11?
According to the consumer reports blog :
“Some three weeks after the specialty retailer filed Chapter 11 bankruptcy on Feb. 19, owners of gift cards and merchandise certificates are facing confusing options about what to do with those obligations, which the retailer initially said it wouldn’t honor, at least for the time being.
On March 7, the U.S. Bankruptcy Court for the District of Delaware granted the retailer’s request to resume honoring its cards and certificates-but only for customers who make a purchase of at least twice the value of the card or certificate. So to use up a $50 gift card, a customer would have to buy at least $100 in merchandise.”
In short, a big legal mess has ensued. The cards are either no longer worth the plastic of which they’re made, or they are at least worth considerably less than face value.
This leaves card holders with 3 options:
- Bust out the scissors and practice a little gift card origami.
- Run, don’t walk, to your nearest branch of the store and buy what you can with what’s left of the card.
- Try to sell it at http://plasticjungle.com/, where people can buy, sell or trade gift cards.
Technorati Tags: sharper image, bankruptcy
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Posted: August 7th, 2008 | Author: Joe | Filed under: Economy, Investing, Real Estate | Tags: Economy, Mortgage Mess, news | 1 Comment »
I stumbled on this video a few days back, and it made me wonder: how representative of the housing crunch is this guy?
For those of you who haven’t heard of Casey Serin, he was a self made real estate speculator. A guy who watched a video, read a couple of books and became a real estate flipper – at precisely the wrong time.
I wonder if the majority of those hit by the crunch were speculators or flippers… I have heard that bandied about a bit, but it’s surprisingly difficult to find any hard data on just who is in foreclosure. I feel pretty confident however that there are a fair number of people like Casey in the mix.
Think about it – this guy is potentially responsible for 8 foreclosures alone! Maybe the spike in foreclosures isn’t really a bunch of families struggling to make ends meet, but inexperienced speculators caught in the collapse of the real estate bubble.
The video outlines a bunch of mistakes he made:
- He paid $15k for “seminars” on flipping.
- Bought at the top of the market (an over priced one too!)
- He lied to lenders.
It’s mostly the last one that irks me most. Guys like this not only run up the prices of homes, but they also game the system making it harder for honest home buyers to afford a home they might need. And they factor in that this guy will probably get bailed out by congress if he doesn’t go to jail first. It really burns my bacon.
I think he’s just a kid who got into something he didn’t understand to a point where he was way over his head before he realized what was happening. But there needs to be some personal responsibility somewhere as well.
Casey Serin had his own blog for a time at iamfacingforeclosure.com, but he seems to have let it go so he can “move on” from the experience.
Technorati Tags: casey serin, housing crunch, foreclosure
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Posted: August 6th, 2008 | Author: Joe | Filed under: Debt | Tags: Debt, loan consolidation, loans, Student Loan, Student Loan Consolidation | 2 Comments »
Got student loan debt?
If you do, you’re not alone. With more people attending higher education than ever before and tuition skyrocketing, graduates are finding themselves saddled with 5 figure debt before they’ve even begun their careers.
I was fairly lucky to do as well I did. Having no scholarship and a deteriorating family situation that left me with very little in college savings available, it was federal loans and summer jobs for me. Still, I had about $10,000 in student loans by the time I finished – and I went to a community college the first 2 years and a state school the last 2 years. I can’t imagine people who went to a 4 year school for the full 4 years.
So, if you’re one of the unlucky ones, like me, who don’t have a 4 year degree gifted to them and emerge from the halls of higher learning with higher levels of debt than you’d ever thought possible, now is the time to take action. Maybe.
Since July 1, 2008 you can consolidate your Stafford and PLUS Loans and save up to 3% on the interest rate.
A recent MSN Money Central article by Liz Pulliam Weston provides the details, but the rates look excellent:
“…3.62% to 4.25% on Stafford Loans and 5.13% on PLUS Loans for graduate students and parents.”
I consolidated my student loans about 6 years ago, and at that time the best rate I could get was 4.5%. But it was A LOT better than the 6.25% I had when I graduated.
There are some exceptions (of course) that exclude some loans from being consolidated:
Only federal loans need apply.
Due to the credit crunch and recent changes to student loan funding from Congress, loan consolidation is not as profitable as it once was. This has forced many lenders to move on to greener pastures, as it were. This means chances of your consolidating a student loan that is not a federal loan are pretty slim.
No second spin on the consolidation merry-go-round.
These new rates only apply to variable-rate federal loans. Anyone who has already consolidated their student loans to a fixed rate loan is excluded from this opportunity.
In a state of grace? Wait your turn.
If your loan is in a period of grace where you don’t need to begin repayment, if you’re still in school for instance, you’ll have to let this opportunity pass. This used to be an option, but Congress eliminated it in 2006. Thanks guys.
Still, there are some additional perks as well.
- There are no fees for consolidating federal debt.
- Interest is Tax Deductible.
- You can get a quarter-point discount for agreeing to automatic debits.
Check out the U.S. Department of Education website for more details at: http://loanconsolidation.ed.gov/
AND this is one of those rare cases in finance where procrastination pays off. Here’s an article on BankRate, titled No rush to consolidate student loans this year that details why it was smart to wait until after July 1st.
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