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Ease Your Parent’s Mind - Check the Rating on Her Bank

Posted Oct 18 2008 12:11pm

By CK Wilde for 3GenFamily blog

I don’t think there was ever a time when my Dad did not worry about money.

Having experienced a lay off when I was about 5 years old, my father worked extra hard to assure that it wouldn’t happen again. And it never did.

He successfully retired from a major corporation that was able to offer him a pension.  But in spite of his frugal living in his last few years, he seemed to panic every time CNN had negative financial news to report.

Part of this was the dementia. It was ever so slowly but relentlessly claiming his confidence and replacing it with more anxiety. There was also a conscious recognition that he could not just go back to work in his frail, barely able to walk condition.

FDIC insurance on his money was more than important. It meant his survival.

To make sure that FDIC covered every penny, my father spread his money out among local banks, being careful not to exceed the FDIC insurance limit at any one of them. He felt that his money was safe even if a particular bank had a problem. And until recently,  I wouldn’t have given a thought to the solvency of any of those particular banks.

Then, IndyMac in Southern California ran into serious financial difficulty and the Fed had to take them over.

Suddenly, it dawned on me that ANY bank could be vulnerable. How the heck do you separate the “marketing” from the financial truth?

If you look at the IndyMac website today, it looks like any other bank. The only clues are the title,”Welcome to the new IndyMac Federal Bank website,” and the side bar which announces “IndyMac Federal Bank and the FDIC are pleased to announce a new program to systematically modify troubled mortgages.”

This is good news if you have one of those troubled mortgages. But what if you want to deposit money? How do you tell the solid banks from the ones that could shut their doors?

Bankrate.com has ratings for every bank, thrift and credit union which they call “Safe and Sound” ratings.

So, I checked IndyMac’s rating. This bank has the lowest rating a bank can have! The federal takeover has not cured any of its problems yet.

Ok, perhaps that was to be expected. So, what about all of the other banks our family uses? I checked the Bankrate.com rating for each of them.

Whew! They all have very good ratings.

The small savings banks we have been using didn’t loosen their lending rules the way some of the other institutions did. So they all are financially sound. Ahhh . . . can you hear my sigh of relief?

What if your money is in a bank with a bad rating?

Take a deep breath and check the amount in each account and who has ownership of the account. Chances are that you are covered by FDIC. Even when the worst happened to IndyMac, depositors were able to use ATMs and checks to access their money. Within a few days,  the Fed had taken everything over and depositors were able to access their entire accounts.

Last week, Congress temporarily increased the FDIC insurance limit from $100,000 per account to $250,000 as part of the bailout package. The higher amount is intended to shore up investor confidence through 2009.

Did you know that it is possible to have more than the limit fully insured by FDIC at the same bank? Yes, you can. You need to pay attention to who owns or benefits from the account, though.

There is a tutorial and an estimator (EDIE the Estimator) on the FDIC.gov website that can tell you if all of you money at one institution is fully insured. This doesn’t replace a qualified CPA in planning your mom or dad’s finances, but can help reassure your parent that all of her/his money is covered by FDIC.

It takes some time to complete. You will need to have accurate information for each account to assure that “EDIE” gives you the correct answer.

Consider it time well spent to give your elders (and you) peace of mind.

What do you think about this post? Leave us a comment!

© 2008 CK Wilde. All Rights Reserved. Please feel free to link to this post but you must have prior written permission (please use the comments) to reproduce this post either whole or in part.

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