You can go for years not thinking about federal insurance on bank deposits--and then a bank failure reminds you of how important this protection can be.
That happened Sept. 28, when regulators took over NetBank Inc., an Internet savings and loan based in Georgia.
In a failure, customers whose deposits are fully covered by the Federal Deposit Insurance Corp. have ready access to their funds. But if deposits exceed the insurance coverage, you may have to wait years to get your hands on the uninsured money, and you might not receive it all back.
Which is why it's prudent, even in these days when bank failures aren't common, to make sure your accounts are fully insured.
How much insurance protection you receive is based on how accounts are titled. An individual with only a savings account will be covered up to $100,000. But a married couple can protect $1.1 million in deposits by properly setting up their accounts.
Most of us have never been through a bank failure, but NetBank can give you an idea of what happens to consumers. It was the second FDIC-insured bank to fail this year.
Accounts were transferred to ING Direct after the bank failed, and consumers quickly had access to their money using an ATM or debit card, said FDIC spokesman David Barr.
NetBank had about 1,500 accounts with $101 million in uninsured deposits. For these customers, the situation is more complicated. In a rare move, the FDIC within days gave these customers access to half of their uninsured deposits, Barr said. So someone with $150,000 in a savings account had access to the $100,000 covered by FDIC insurance plus half of the rest, or $25,000.
To obtain the remaining money, the customer will have to stand in line. Those with uninsured funds will become priority creditors of NetBank, meaning their claims will be paid ahead of others. As the FDIC sells NetBank's assets, these customers will receive a share.
If that's not enough to worry about, there's also fraud. The government is warning former NetBank customers not to bite on unsolicited e-mails claiming to be from the FDIC or ING Direct and asking for personal information, including Social Security numbers. The FDIC and ING already have that information.
"You should assume that any e-mail requests to provide [personal information] are fraudulent," the FDIC said.
Bank failures are infrequent. But if you keep sizable sums in a bank or savings and loan make sure your money is covered by the FDIC.
A common misconception is that FDIC coverage is $100,000 per person or per account. Coverage is based upon account ownership.
For instance, an individual with savings and checking accounts will be covered for up to $100,000 because the two accounts are titled under a single name.
But a married couple can have several accounts titled differently and could be covered for much more.
Take this example from Barr: Say they have a joint savings account. On top of that, each has a checking account, an individual retirement account and a trust account naming the other spouse as a beneficiary.
FDIC insurance will cover up to $200,000 in the joint account. Each checking account and trust account is also insured for $100,000, or $400,000 total. And, since last year, each spouse's IRA is covered up to $250,000, or a total of $500,000. Total coverage: $1.1 million.
It's up to you to know the rules of FDIC coverage and make sure you are protected. If your bank fails and you are not fully covered, you can't blame the bank for giving you bum advice. "We've had that happen with bank failures," Barr said.
To play it safe, go to the FDIC's Web site at www.fdic.gov and use the Electronic Deposit Insurance Estimator to figure if you're covered. Or call the FDIC at 877-ASK-FDIC (877-275-3342).
Eileen Ambrose is a columnist for The Baltimore Sun, a Tribune Co. newspaper.Copyright © 2015, Los Angeles Times