Making sure your money is safe

McClatchy Newspapers (MCT) - Is my money safe? That's the question nagging at many consumers these days, and not just because Washington Mutual joined the list of 2008's failed banks last week.

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"It's been overwhelming," said Cindy Adams, a Sacramento-based certified financial planner. "I've got lots of nervous people calling who want reassurance."

Not everyone is prepared.

"When banks close, you'd be surprised how many customers come to us and are shocked that they have uninsured money," said David Barr, FDIC spokesman in Washington, D.C. He noted that bank failures are infrequent, with only 1.5 percent of all "troubled" banks failing.

At Chico-based TriCounties Bank, Chief Operating Officer Rick Hagstrom said questions about FDIC coverage rarely came up five or seven years ago at the bank's 57 branches.

"Now it always comes up when routine customers come in: How do I ensure my deposits are insured?" said Hagstrom.

For customers of troubled banks like WaMu, the FDIC fully backs the accounts up to its set limits.

"We've been insuring banks for 75 years and not a single customer has ever lost a single penny of insured money," said Barr.

The key word in that sentence is "insured."

For most people with less than $100,000 at a local bank or credit union, there's no need to worry.

If your deposits are with a conventional bank, you're most likely covered with the basic FDIC protection: up to $100,000 per person, per bank, and up to $250,000 for most IRA and retirement accounts. It's the same if you bank at a credit union covered by the National Credit Union Association, or NCUA.

But there are a number of ways to increase the coverage of your money accounts at your local bank.

There are four categories of bank accounts covered by FDIC insurance: individual, joint, retirement and trust-type accounts. By employing all of them, a married couple with no kids, for instance, could stash up to $1.1 million _ fully insured _ at one bank.

Here are some choices for expanding the amount of coverage on your savings.

_Brokered CDs: Just as the name implies, these are CDs purchased through a brokerage firm, a financial planner or financial adviser. It's a way to quickly establish multiple CD savings accounts at different financial institutions, all covered up to $100,000 each. Because they're purchased out in the national market, they often offer much higher rates than typically found at your local bank.

But they do carry risks.

If you purchase a CD through a broker, be sure to use a reliable one. Call the state Department of Corporations at (866) 275-2677 or the National Association of Securities Dealers at (800) 289-9999.

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Also, read all terms about early withdrawal penalties and get a copy of your CD's exact title so you know what bank issued it.

_Trust-type accounts: Officially known as Payable-on-Death accounts, or PODs, these are a type of trust banking account that lets you add beneficiaries, who each get FDIC coverage up to $100,000. You have complete access to the funds during your lifetime, with the proceeds going to the named beneficiary upon your death.

Under new FDIC rules enacted Friday, previous limitations on who qualified as a beneficiary have been lifted.

Adams, the financial planner, said she recommends PODs for lots of clients, especially those who don't have a living trust. She said one of her clients had $300,000 in CDs at one bank, which meant only $100,000 was FDIC-insured in his name. By adding each of his children as a beneficiary on the three accounts, he was able to get complete coverage.

While the FDIC says the use of PODs has been increasing, they're also the type of bank accounts most fraught with problems.

Consult an estate planner or tax attorney before setting one up, especially if you're leaving money to minors.

"Think about the implications when you set these up," said the FDIC's Barr. "If you walk out the door and get hit by a bus, you might be leaving $100,000 to a 12-year-old."

_CDARS: Known as the Certificate of Deposit Account Registry Service, CDARS is a national network of banks that opens CD accounts for one another. It's a convenient way to park a large sum _ up to $50 million, if you're so inclined _ at your local bank, which then purchases multiple CDs for you from member banks across the country.

Let's say you've got $600,000 to invest in CDs but don't want to go to six different banks and open six different accounts covered up to $100,000 each. The CDARS system allows you to open one account at your local bank, which then takes care of purchasing multiple CDs, each within the FDIC insurance limits.

The advantage is that you get one bank statement, one 1099 tax form and don't have to do any calling around to set up multiple accounts.

The downside is that you also get one specific interest rate for all the CDs purchased, which can be lower than what you might find shopping around on your own.

TriCounties Bank started offering CDARS last spring, including at their nine branches in the Sacramento region.

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"The timing was fortuitous for us," said Chief Operating Officer Rick Hagstrom. "We didn't anticipate the economic environment we're now in. But it's been very effective so a customer doesn't have to go to different banks and divide up deposits in multiple banks."

While the risk of a bank failing is extremely low, it does happen, as we saw last week. And if it's your bank, you want to be sure your accounts are fully insured.

In the last month, the FDIC's Web site (www.fdic.gov) has experienced a few days of "record" numbers of hits, into the millions a day, by those checking on FDIC coverage, said Barr. And that's a good thing.

"It's better to find out while your bank is still open," said Barr. "(FDIC) rules do not allow for any recourse if your bank fails and you've set your accounts up incorrectly."

To check your coverage, go to the FDIC Web site at www.fdic.gov/EDIE and use the "Electronic Deposit Insurance Estimator" to determine exactly how much you've got covered. You can do a same check at the national credit union Web site, www.ncua.org.

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(Claudia Buck is the assistant business editor of The Sacramento Bee. Personal Finance Notebook answers questions about money matters, tapping a roster of experts for advice on navigating the often-confusing world of personal finance. Submit questions to cbuck@sacbee.com or P.O. Box 15779 Sacramento, CA 95852.)

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© 2008, The Sacramento Bee (Sacramento, Calif.).