Fdic

[Lion]

I've read the threads; I've gone to the sites. I know more than I hope I'll ever need to know about FDIC insurance for individuals, retirement accounts, trusts, differently titled accounts, beneficiaries, etc. But, are business accounts limited to $100,000 insurance per EIN per bank? I have a client with about $500,000 in accounts at Bank of America for his S-corporation. If he moves his money to five different banks, he can no longer link the accounts to be able to transfer online from money market to payroll, for instance, or qualify for a line of credit to cover overdrafts or... I'm having trouble finding business accounts specifically referred to. It's bad enough wading through the tax code, but we have to understand social security regulations, FDIC rules, ERISA, and on and on!

[KJ Judd]

I'd suggest contacting a reliable banker in your network & asking her to explain FDIC related to businesses. The bankers I know will ask me a tax question from time to time, so I figure they should be able to help me as well.

[S T]

More FDIC

Lion, keep in mind it is not necessarily the EIN# that governs what FDIC covers, it is the the legal ownership on the account.

So if a sole proprietor, the business account (under my EIN#) is added as well to their other individual account holdings(under my SSN#). Example: I am a sole proprietor my business accounts are also added to my personal accounts, for a maximum of $100,000 or $200,000 (single or joint) again depending on ownership of the account.

http://www.fdic.gov/deposit/deposits/insured/yid.pdf Here is a guide to the various questions about ownership and FDIC coverage, Unfortunately yes Business accounts are only covered to $100,000. See page 23.

There is what they call CDARS http://www.cdars.com/index.php. I haven't had the opportunity to investigate much, but I am sure Bank of America offers it. It is a way to increase the FDIC insurance on deposits and still have much of your holdings at one bank.

Hope this info helps

Sandy

[JohnH]

The CDARS info was very interesting, and their site offers links to several excellent related articles published recently in the financial press. CDARS serve a useful purpose, but primarily for institutions who want to tie up their excess funds in CD's. Brokered CD's wouldn't be helpful for accounts where there is regular activity or frequent movement of funds.

I posted a complaint on the other thread about receiving patently wrong info from bankers concerning FDIC coverage, even from one banker who claimed to have just attended a seminar on FDIC. Well, in the past few days I had another experience, where a banker assured an incorporated church that its deposits of over $200K were covered, when in fact they only had $100K in coverage for their aggregated accounts. One further thing which bother me is that the banker in this case never mentioned CDARS or brokered CD's, when in fact his bank is on the list of participating banks. Bottom line is that you can't trust what your banker says on this subject - many of them just don't know and they are willing to give off-the-cuff answers for very serious questions without doing their homework. I suppose it's because they are under pressure to sell other bank products and increase fee revenue from customers, so there's not a high priority to insure that their customers are protected properly with respect to the deposits the bank already has under its control.

As this situation progresses, I'm becoming more and more convinced that the individual who wants to be certain of the safety of their funds had better move pretty quickly to Treasury Bills once they have exhausted the basic, simple FDIC ownership arrangements. In one sense it's a nice problem to have, but it needs to be addressed professionally rather than in a casual conversation with a customer service rep or branch manager. I suspect there are numerous people and institutions out there who are facing a financial disaster if their bank fails. They don't have a clue about the huge risks they are taking - they've been lulled into a false sense of security by inattentive & uninformed bank employees. If the bank fails, most of them won't even be available to confirm the bad advice they handed out - they will have moved on to another job (maybe giving out bad advice at another bank).

[Lion]

Thank you

Thank you. For the comments. For the additional site to visit. Going to see that client now.

[JG EA]

So if banks are sometimes wrong...

I posted a complaint on the other thread about receiving patently wrong info from bankers concerning FDIC coverage, even from one banker who claimed to have just attended a seminar on FDIC. ...One further thing which bother me is that the banker in this case never mentioned CDARS or brokered CD's,...

Could you explain a little more about what you mean by brokered CD's. On page 4 of that web site Sandy entered it says CD's are covered. Are there covered and uncovered (that the banks do not mention)?

[JohnH]

I should have been more cautious in using the term, because "brokered CD's" can be lots of different things, not all of them pleasing. CDARS are a form of brokered CD, and there's another system "Synovus", but I don't know all the specifics about either of them.

Regardless of the name or structure, I'd still have a concern about any arrangement which inserts a third party into the mix, no matter how many times I'm told the FDIC vcoverage is there. The sad fact is that many people within the industry who should be well-versed just don't understand this stuff.

http://www.sec.gov/investor/pubs/certific.htm

In my mind, the only way to know for sure is to follow the plain-vanilla rules by putting money directly into FDIC insured accounts at banks, using the various ownership strategies that insure overlapping coverage. If you exceed that, then it's on to Treasury Bills, because they are the only thing giong which are guaranteed to be safer than FDIC.

[JG EA]

Thanks, and thanks for the information on the site. It seems like the main threat is being over the limit, but I guess asking the bank for assurance, even in writing won't help much if they go out of business. Perhaps asking for an FDIC qualified in writing might help (if under the limit that is).

[Burke]

I read the CDARS article and apparently you sign an agreement with one bank, accept one interest rate, but the way it is structured, it is not all in one bank at all. It appears that it is farmed out to "network" banks (in the form of CD's) to meet the definitions of FDIC regs. Therefore, the funds on deposit with the bank you actually deal with may not meet their requirements for credit should you need loans, you could not transfer monies back and forth to meet payroll obligations, etc as the OP mentioned.

[JohnH]

After the events of this weekend and today, would this be a good time to bring up the subject of FDIC coverage again? One article I read speculates that there are 1,000 banks believed to be in trouble. I just wonder if the situation might be that dire, and if so what does that mean for the remaining (preumably healthier) banks in the system? Especially since another article quotes an FDIC spokesperson who says that 98 percent of insured banks fit the definition of well-capitalized. I'm sure both statements can be true, but I also know that the FDIC keeps problems a secret until it has to act.

[S T]

More FDIC

JohnH, I am thinking along the same lines. But now we not only have FDIC, but what about the coverage for the Securities Accounts, which I am not familiar with. Securities coverage doesn't seemed to be backed by the US Govt and limited at that depending.

Bankrate.com has a rating on banks, however, it is generally at least 90 days behind, based on financials submitted, I believe quarterly and other factors. How does one search for stability with a brokerage house or securities?

There are also some other sites that give some information, but not sure how reliable, they are suppose to give you the financial health of a bank institution.

The "so called watch list" of banks and savings and loans is growing. When Indymac failed, it seems like the watch list was around 90 financial instituitions, and tonight on the news they stated something like slightly over 100 institutions!

Think we should start a new thread?

Sandy