Small banks and big ones alike are on the verge of bankruptcy, due to all of the bad loans that have been approved over the past few years....
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Small banks and big ones alike are on the verge of bankruptcy, due to all of the bad loans that have been approved over the past few years. Although people tend to assume that their money will be safe even if their banks fail, history has shown that this isn't always the case. Find out if your hard-earned cash is at risk.
BY PAT SUMMERS
A large number of banks went overboard during the housing boom and lent money to people who shouldn't have been able to get a loan. The bad debt has now caught up, leaving many banks struggling to keep their doors open.
Washington Mutual, National City and Wachovia are just a few of the big banks now looking for huge cash infusions to keep their businesses running. Lenders of this size will probably be able to get the needed financial backing to keep their banks open. However, smaller banks may not be as lucky.
If and when a bank does fail, most depositors will be covered by the Federal Deposit Insurance Corporation (FDIC). In case you didn't notice, the key word is most.
The FDIC only insures deposits up to $100,000 at most banks. Retirement accounts are insured up to $250,000. What this means is that anyone with $100,000 or less in their account ($250,000 or less in a retirement account) is completely insured--anyone who has more than that is not.
People who have less than $100,000 in their account do not need to worry. They will receive 100% of their money from the FDIC. Other people should consider taking action right away.
On average, uninsured depositors get less than 70 cents back on the dollar. The exact amount will depend on how assets are liquidated and how many people will be splitting the proceeds.
There have been cases where depositors have received less than this amount. For example, uninsured depositors only received 42 cents on the dollar when the Oakwood Deposit Bank failed.
It is the depositor's responsibility to make sure that his or her funds are properly insured. Just because the bank teller says it is so, doesn't mean that it is. If you accumulate over $100,000 in any one account or more than $250,000 in any retirement account, you should get your accounts structured immediately so that they will be properly insured.
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