Be Sure to Check Records on Savings Accounts
By now you may have heard that Congress is considering reforms in federal deposit insurance--a system that some say helped contribute to the nation’s mounting savings and loan fiasco.
But some new rules for deposit insurance are already scheduled to go into effect beginning July 29. And while the basic $100,000 limit on coverage is not affected, there are a few modifications that you may need to act on to protect yourself in a bank or thrift failure.
The rule changes, adopted April 30, were needed to reconcile differences between insurance policies of the now-defunct Federal Savings and Loan Insurance Corp. and the Federal Deposit Insurance Corp. The FSLIC was abolished in last year’s thrift bailout bill; the FDIC now insures deposits of banks and S&Ls.; Banks and thrifts are mailing notification of the changes to depositors this month.
Perhaps the most significant of the new rules concerns documentation you’ll need to verify insurance coverage on your accounts should your bank or thrift fail. The FDIC will no longer settle for account statements, deposit slips or canceled checks. Instead, it will look at such things as account ledgers, signature cards, certificates of deposit, passbooks and certain computer records of the institution.
Therefore, to reduce confusion and delays in getting your money out of a failed institution, keep photocopies of such records, especially signature cards, suggests Hugo Ottolenghi, editor of 100 Highest Yields, a North Palm Beach, Fla., newsletter. These records are particularly important if you have certificates of deposit or if you’ve been dealing with out-of-state institutions, he says. Also, he suggests, keep copies of any documents that spell out just who owns your accounts, such as trust or power-of-attorney papers.
Why is this important? In some failures, bank or thrift records were so disorganized that depositors without their own documents waited days or weeks before getting their money. “In the worst cases, records were just stacked up in corners,” Ottolenghi notes, adding that signature cards and other documents may be incorrectly filed.
“Don’t count on the idea that, just because you’ve filled out (a statement), the bank has filed it,” Ottolenghi notes. He adds that a reader of his newsletter recently called claiming that his failed institution could only initially account for four of his 12 CDs.
Other noteworthy rule changes include:
* IRAs and Keoghs. Individual retirement accounts and Keogh accounts will be insured separately. Thus, a self-employed person can have $100,000 in each type of retirement plan at the same institution and still be fully insured. Under old FDIC rules, insurance on IRAs and Keoghs was combined, but the FDIC decided to adopt the FSLIC rule.
* Mergers. If you have accounts at two institutions that merge, they will continue to be insured separately for the first six months after the date the merger takes effect. Thus, if you had $100,000 in Thrift A and $100,000 in Thrift B, and the two merge, both accounts will still be fully insured for six months.
However, CDs will continue to be separately insured until the first maturity date after the end of the six-month transition period. Those that mature during the six-month period and are renewed for the same term and dollar amount will continue to be separately insured until the first maturity date after the six-month period.
* Joint accounts. Each co-owner of a joint account must sign a signature card for the institution’s records as proof of joint ownership. (However, no signature card is needed for jointly owned CDs). Be sure to make a copy for yourself.
Ottolenghi notes that you can designate that one person owns more than an equal share of the account; for example, 75% for one person, 25% for the other. But the document verifying that must be on file with the account. Otherwise, the FDIC will assume equal ownership, he says.
* Pension plans. The new rules affect so-called 457 plan accounts--funds that are deposited by employers under deferred compensation programs for certain employees of state or local governments or tax-exempt organizations. Such accounts at any one institution will be insured up to $100,000 in total, not up to $100,000 per employee or participant.
However, accounts in existence as of July 29 will continue to be covered up to $100,000 per participant until Jan. 29, 1992, for new as well as existing participants.
* Testamentary revocable trust accounts. Through these accounts, funds go to your designated beneficiary when you die. Under the old FSLIC rules, a husband could act as trustee for his wife, and vice versa, and they could insure $200,000 in one CD. But under the new rules, couples cannot act as both trustee and beneficiary in the same CD and get separate insurance as a testamentary account. Instead, such an account will be insured as a joint account, with the amounts added to those in any other joint accounts held by you and your spouse in the same institution for insurance purposes. Existing accounts are being grandfathered in under the old rules.
Confused by these and other changes? Check with your bank or thrift, or write: FDIC, Office of Consumer Affairs, 550 17th St., N.W., Washington, D.C. 20429.
