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Ask the expert: what to do with money market accounts and other deposits with more banks at risk
Q: I saw an article recently saying that the number of banks in financial trouble was at the highest level in 18 years. I have a money market account and a checking account; how concerned should I be about their safety? How can I find out if my bank is on the list of troubled banks?
A: The FDIC releases periodic reports on the financial conditions of banks, and the report for the fourth quarter of 2010 revealed that 884 banks are now on the FDIC's list of problem banks. This represents about 11.5 percent of all FDIC-insured banks. That's bad enough, but since the FDIC doesn't reveal the identity of the problem banks, this situation can create uneasiness for all bank customers.
Of course, the reason the FDIC keeps its list confidential is that naming names would cause an immediate run on those troubled banks, effectively scuttling any attempt to save them. That's good for the banks, and potentially good for the banking system as a whole. But what should individual banks customers do?
Here are a couple of suggestions:
- Stay squarely within FDIC deposit insurance limits. The $250,000 insurance limit applies across multiple accounts at any one institution, so if you have savings accounts, money market accounts, CDs and/or checking accounts with any one bank, you may want to split them up if necessary to keep the total under $250,000.
- Be alert for signs of trouble at your bank. MoneyRates.com recently published an article listing seven signs that your bank may be in trouble.
In 2009, it was the big banks that were most likely to fail. More recently, it has been the turn of the smaller banks, but the market is so diverse that it is dangerous to make any generalizations. Relying on FDIC insurance and keeping your eyes open for signs of trouble may be the best a depositor can do.
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