I'm going to begin this piece with one word: diversify. Now you probably know where I'm going with this article, especially if you heard about the failure of one of the nation's largest home lenders this month. IndyMac Bancorp was taken over by federal regulators on July 11 and transferred to the FDIC (Federal Deposit Insurance Corporation). The FDIC also has its eye on almost 100 more banks that may fail this year, but it won't publish the list over a concern that this knowledge may spur a nationwide bank run. This is a wise decision, as many recessions in the U.S. have been caused by banking panics.

A bank run occurs when a large number of depositors withdraw their funds from banks over fears that those banks could become insolvent. Since banks don't carry enough cash on hand to return deposits to their customers, those banks could face bankruptcy as they need to call in their loans to meet customer demands for withdrawals. In other words, a bank run is somewhat of a self-fulfilling prophecy - the fear that a bank could fail is made real when a large number of depositors demand their funds.

So, while the IndyMac Bancorp story might feed into your worst fears about failing banks across this country, you might stop and think for a moment about how much you have deposited in any given bank account. If that amount you have deposited in a checking or savings account is less than $100,000, you have no need for worry. Your funds are insured by the FDIC, and you will not lose that money. For instance, in the case of IndyMac Bancorp customers, they lost Internet and phone access to their accounts over the weekend after the FDIC took over that bank, but on the following Monday it was business as usual for customers who had less than $100,000 in their accounts. Those customers were able to use their bank cards, debit cards and checks during the entire weekend.

Your question, then, might concern individuals who have more than $100,000 in a bank account. My question back to you is this: "Why in the world does someone have more than $100,000 in any one account?" The reason I ask this is that the $100,000 FDIC insurance policy has been in place since 1933, when the FDIC was created to insure funds following the Great Depression. The FDIC insures all deposits at insured banks, including checking, NOW and savings accounts, money market deposit accounts and certificates of deposit (CDs) up to the insurance limit. They do not insure money you invest in stocks, bonds, mutual funds, life insurance policies or municipal securities, even if you purchase these products from an insured bank. Finally, certain retirement accounts, such as an IRA (Individual Retirement Accounts), are insured up to $250,000 per depositor per insured bank.

You can have multiple accounts in an insured bank, and these accounts all will be insured up to the $100,000 limit (or other limits as provided by the insured bank), but only if those accounts are equal to or less than that limit. Other qualifications apply as well. For instance, you can maintain a personal checking account in your name and a joint account with a spouse, and both accounts will be insured. But, if you own a personal checking account and a savings account in your name only, those accounts are considered one account, and they're insurable up to $100,000 for both accounts together. For more information about insurance on your deposits, visit the FDIC's "Insuring Your Deposits" Web page.

Your first task, should you decide to panic, is to make sure that your bank or savings association is insured by FDIC. You can complete this task with a toll-free call to 1-877-275-3342, use "Bank Find" on the Internet, or look for the official FDIC sign where you bank. If your bank is insured, then you might assume that your deposits are covered up to $100,000, as that is the normal amount for any checking or savings account. Next, take a look at your accounts and determine if you have more than this amount accrued in those accounts. If so, then you might think about how to spread the wealth around a bit more so that your money is diversified for safety's sake.

What happens to customers who have more than the insured amounts in their accounts? In the case of IndyMac Bancorp, the customers who had uninsured deposits may receive at least half of that money or more down the road, depending upon how much money the FDIC receives when it sells the bank. So, if you had $200,000 in your savings account, you will definitely receive $100,000, possibly $150,000 or more when that bank is sold. In other words, what is basically a non-event for depositors who have less than $100,000 in any given account could become a true loss for those who have more than $200,000 in any given account (or combination of accounts under the same name). While this information offers some explanation as to what will happen for uninsured IndyMac Bancorp customers, it may vary for other banks that could face the same fate.

I know very few people who keep over $100,000 in any given bank account, but I do know individuals who use the same bank for all their deposits, including checking, savings, CDs, bonds and more. I'm advising those friends to spread their wealth around to several different banks, as well as to think about creating joint accounts with children, spouses, etc. so that all accounts aren't in an individual's single name. Depositors also can take some of that money and invest in the stock market, especially while the market is down (buy low, sell high, remember?). While stock market accounts aren't insured, it's all part of diversifying your wealth for safety.

These are just a few solutions for a potential problem, and they sure beat keeping your money under the mattress (although if you have $100,000 in a bank account that doesn't bear interest, I would wonder if you consider that bank as your mattress...). Remember - don't run, but do walk (or drive, if you must) to your bank to learn how to best diversify your funds. While I can't guarantee that more banks won't go under, I firmly believe that you'll rest easier this summer - and for the rest of your life - if you learn how to best diversify your funds now.

Until later,
Linda Goin

BUYandHOLD does not recommend any securities. The security mentioned above is being used for informational and illustrative purposes only and should not be regarded as an offer to sell or as a solicitation of an offer to buy.