A Bank Failure Doesn't Mean Your Money Is Gone

(MoneyWatch)  The news that regulators seized BankUnited FSB in Florida is a reminder that we're not out of the woods yet in the current financial crisis. Thus, it is important to review some of the safeguards associated with deposits held at an FDIC-insured bank.

In general, the FDIC insures bank deposits -- such as savings accounts, IRAs and CDs -- in the event of a bank failure. In October, the amount of coverage increased from $100,000 to $250,000, though the increase was only supposed to last through 2009. On Wednesday, the time frame for the increased coverage was extended through 2013.

It is important to note that deposit insurance limits are account-type specific. Also, protection at any one banking institution may be more than any one account-type limit. Some of the most common FDIC deposit insurance coverage limits are:

• Single account (owned by only one person) -- $250,000
• Joint account (owned by two or more person) -- $250,000 per co-owner
• IRAs and certain other retirement accounts -- $250,000 per owner
• Trust accounts -- $250,000 per owner per beneficiary subject to specific limitations and requirements

Consider the following example of a husband and wife. They have a joint checking account, the wife has an IRA, and the husband has CDs. All the accounts are at the same bank. They would be entitled to up to $1 million in coverage -- $500,000 for the joint checking account and $250,000 each for the IRA and the CDs.

You should also keep in mind that it might not be in your best interest to reach the maximum protection limit in your accounts. For example, let's say you bought $250,000 in CDs. There are two things to consider.

• First, the interest accumulated would not be covered by the FDIC, as it would take the account over the limit.
• Second, if the CDs mature beyond 2013 (when the increased coverage is expected to end), only $100,000 of the CDs would then be covered by the FDIC.

The bottom line is that while more banks may be in danger of failing, your money should be protected even if it's held at one of these banks, provided you consider the FDIC insurance limits.