BY JOSHUA E. YOUNG, ESQ
In the wake of the recent IndyMac Bank failure and the financial troubles of many of the nation’s largest banks and investment banks, many Americans are worried about the safety of their bank. Those fears may be warranted depending on who you bank with, but the majority of banks, especially the local community banks, are safe and sound.
In fact, out of the over 8,500 banks in the United States, only 117 (or just over 1%) are on the Federal Deposit Insurance Corporation’s (“FDIC”) “problem list.” Granted, that number has risen 149% since the fall of 2006, when it was 47 and at an all time low, but it is a far cry from the levels seen during the savings and loan crisis of the early 1990s when there were over 1,500 institutions on the “problem” list. Nevertheless, the number is at a fiveyear high and is rising, largely because of the housing crisis and credit crunch.
However, most South Florida banks are well capitalized and should weather this economic storm. To this end, what was considered well-capitalized in the early 1990s is deemed substandard today. Moreover, many banks, especially the community banks, did not participate in subprime loans, lessening the blow being suffered by many of the larger banks and investment banks.
Community banks are generally known for their conservative lending guidelines, and they make it a point to truly know their customers. Most community banks did not stray from those principals over the last few years, and it has paid dividends, as they have weathered and will continue to weather this economic storm. Indeed, community banks are still lending, accepting new deposits, and people are beginning to realize that perhaps the safest place for their money may be with the local community bank in their neighborhood.
No matter who you bank with, you should do some homework on your bank. For starters, check a bank rating service such as BauerFinancial.com or TheStreet.com to measure the health of your bank. If you are considering moving banks, you may also want to ask colleagues or friends for a referral. If you don’t have a trusted, personal banker, perhaps it is time to find one.
More importantly, make sure your deposits are fully covered by the FDIC. The FDIC provides $100,000 of insurance coverage per depositor per bank. For a single depositor, that means the FDIC insures all of your deposit accounts such as checking, savings, money markets, and certificate of deposit accounts up to $100,000 per bank. The FDIC also provides an additional $250,000 per person for retirement accounts such as IRAs, SEPs, SIMPLEs, defined contribution plans and profit-sharing plans.
You can increase the amount of coverage, however, through creative titling of your accounts, such as titling in joint name. A depositor’s co-ownership of funds held in joint accounts, for example, are in their own category for FDIC purposes, which means a husband and wife can get $400,000 in FDIC coverage from a single bank. That is, husband titles one account in his name ($100,000 coverage), wife titles another account in her name ($100,000), and then the couple has a joint account in both names, which gives them $200,000 coverage for the joint account ($100,000 each as a co-owner). Collectively, they have $400,000 coverage. And you don’t have to be married or even related to enjoy the FDIC insurance benefits of titling in joint name.
Being related does have its benefits for FDIC purposes – especially if your relatives are named as beneficiaries to your accounts. When you name beneficiaries to your bank account, you are creating what is known as a “Totten” trust or a “payment on death” (POD) account. POD accounts are informal trusts and thus, when the account holder dies, the funds in the account are distributed to the named beneficiaries, similar, to an insurance policy or your IRA. Plus, POD accounts, like trusts, avoid probate, simplifying things for your heirs. However, to qualify for the FDIC insurance coverage, the beneficiary of a formal or informal trust must be “qualified,” which means they must be a spouse, child, grandchild, parent, grandparent, or sibling.
I welcome your questions. Please contact me via email at joshua.young@turnberrybank.com. For more information, visit www.fdic.gov and www.sipc.org.
Joshua E. Young, Esq., is Executive Vice President & General Counsel for Turnberry Bank. Founded in 1985, Turnberry Bank is a federal savings bank headquartered in Aventura, Florida with banking centers in Pinecrest, Coral Gables, South Miami, and Aventura For information about Turnberry Bank, visit www.turnberrybank.com.
