The Tycoon Report

How To FULLY Insure Your Deposits When Your Bank Closes

Tuesday, August 5, 2008 | Chris Rowe

Last week I promised you a special article on how to get the FDIC to insure your bank deposits for more than the $100,000.00 you hear about on the news.  Then, over the weekend - of course - I noticed a Wall Street Journal article that touched on the subject.  But they left out LOADS of important info and tricks. 

When Former Federal Reserve vice chairman Alan Blinder was recently asked how many more bank failures we're going to see, he replied "Probably dozens, if not scores."

So far this year there have been 8 bank failures.  This can happen to your bank overnight.  The most recent victim, which was the second largest bank failure in history with over $1 billion in uninsured deposits, jumped into default so fast it didn't even pass through the FDIC watch list!  Their customers thought everything was safe and nothing would go wrong, yet they found themselves literally locked out during bank hours with empty pockets, looking as if they were window shopping for withdrawals.  All they had to do was read about what I'm about to show you.

Even if you have a perfect credit score and you have enough in the bank to make 5 years worth of mortgage payments, your money is NOT safe unless you take action today!

If you think it can't happen you're dead wrong.  And even if I can't help you today, I can help someone to whom you forward this article, and you just might be able to save somebody else hundreds of thousands, or even millions of dollars. 

Today I show you how to avoid your wost nightmare - your bank and deposits evaporating...

Meet Bob O'Shea, a 50 year old ex-retiree from New York City.  He started an entertainment company with only $50.00 in the bank when he was 20 years old, and built the business brick by brick through good economies and bad.  Over 30 years, he dealt with hundreds of employees, some good relationships and some awful.  Through blood, sweat, tears and endless sacrifice he build a decent sized company.  At the end of his long ride, another company offered to buy his for $80 million in cash, and he still owned 60% of it, so his take was $48 million. 

WOW!  What an achievement!  That's what I call the American dream.

In this economy, retirement and family time sounded just lovely!  So he sold without blinking!  His attorneys settled the deal and wired $48 million to his bank account.  AWESOME!  What could go wrong?!

.....

As he was driving his 12 year old Buick home after closing the deal, his mind was racing.  He thought to himself: Should I  stick the cash in the stock market?  Bonds?  Oh, I think commodities are doing pretty well lately.  What's gold trading at these days?  What's the risk/reward ratio?

Then he slowed the car down, strapped on his seat-belt and checked his side and rear view mirrors.

"Let's calm down", he thought to himself.  "There's no need to be risky here since I can probably make a couple mil a year just on the interest.  Let's be smart and just keep the cash in the bank for a few months where it's safe and then we'll decide what to do with it." 

He drove past his bank.  "Ah, there it is.  ShmindyShmac Bank.  I should definitely go negotiate a better interest rate next week." 

Fast forward to early this morning.  While you were eating breakfast, Bob O'shea was sleeping in - FINALLY after 30 years of working he sure earned it. 

He woke up and reached for his remote and clicked on the T.V. and half dozed off.  Half awake and half asleep, he always loved closing his eyes while he listed to the voice of his favorite news reporter, Maria Bartiromo, as she'd talk about the stock market. 

Hmmmmmmm, yes.  Eyes closed, he listened to her talk about the employment numbers while he pictured this:


But suddenly, the image quickly turned to this:


...as he hears words that sent shivers down his spine:

"ShmindyShmac Bank, which once employed 10,000, fell prey to a classic run on the bank.  This institution failed today due to a liquidity crisis.  Although this institution was already in distress, the deposit run pushed ShmindyShmac Bank over the edge.  ShmindyShmac Bank is now the third-largest financial institution failure in U.S. history!"

He fell out of bed Jim Carrey style - heart pounding.

"OH MY LORD!  This can't be happening!  I'll do anything!  Please let this be a nightmare.  PLEASE!  Okay, wait, wh- what's she saying?"

Maria goes on:

"Regulators said deposits were safe and insured by the FDIC...."

"Oh, lord, thank you lord, I'll never swear again good lord, I'll help the needy good lord, no more potty mouth curse words and I'll...."

Maria continues:

"....up to $100,000.  So again, as long as your deposits are $100,000.00 or less, they are fully insured by the FDIC and you have nothing to worry about."

"SON OF &**$*@@##*#!!!!!!!!!  Root'n Toot'n **$*##@ Varmit *&^^@*@### right in the $#@@!*!&&%$!!!!! .........NNNOOOOOOOOOO!"

The sequel to this story is the FDIC takes over the bank, retains the assets and sells them.  So Bob now has to wait for the FDIC to find out how much the bank's assets are really worth, and then sell off the bank's assets, if possible, and then hopefully return part of his deposits depending on what they were able to recover.

THIS WON'T HAPPEN TO READERS OF THE TYCOON REPORT - NOT ON MY WATCH!

If you have over $100,000.00 in deposits, or if you know anyone who does, you absolutely must know the following to keep your deposits from disappearing:

You can actually have your deposits insured by the FDIC for up to $50 million.  So why isn't this common knowledge?  I don't know.  But if I were the FDIC I certainly wouldn't be advertising it!   Not in THIS market where many more bank failures are widely expected.  I don't think the banks want to you to know about it either, because they are charged a fee (and there is zero additional charge to the customer). 

A contact of mine at FDIC (who will remain anonymous) gave me several pointers on how to maximize your deposit insurance, and I highly recommend you forward this to as many people as possible before it's too late.  Why should you, or someone you care about, literally have to pay, with your life savings, for millions of people with bad credit and a ton of debt who have to foreclose on their homes?  Because that's exactly what's happening.  And what if your bank failure puts you in the position where you then can't pay your mortgage?  Does that sound fair?

There are a few ways to insure your deposits for much more than $100,000.00 other than banking at multiple banks.  Two of the best ways are:

1) Using something called the Promontory Interfinancial Network's CDARS (Certificate of Deposit Account Registry Service) which allows you to insure deposits up to $50 million.

2) Finagle your account structures into different "account categories" so the FDIC insures each account category separately, thus significantly increasing the amount insured.

First I'll explain how CDARS accounts are FDIC insured up to 50 million dollars.

The Certificate of Deposit Account Registry Service, operated by the Promontory Interfinancial Network, takes your deposits and spreads the risk around numerous banks.  In other words, if you had $1 million and you know the FDIC insures up to $100,000.00, you might consider opening 10 savings accounts at 10 separate banks.  But CDARS does that legwork for you. 

Your deposits get broken down into packets below $100,000.00 (below, so the interest you earn doesn't put you over the $100k limit), and then distributed between several banks around the country.  But you don't have to open any additional accounts, and you still get one bank statement, one interest rate and one 10-99, all from your home bank.  Again, there's no extra charge to you, the customer, but there is a charge to the bank.

Just like your typical CD (certificate of deposit), there are a variety of maturities.  You can select from maturities ranging from 4 weeks to 5 years. 

So anyone with over $100,000.00 in the bank should ask their bank if they are a member of the Promontory Interfinancial Network.  Over 2,200 banks are members so it's likely that your bank is on that list. 

What if they're not a member?  What if you don't want to use CDARS and certainly don't need that much protection?  Maybe you're slightly over the $100,000.00 limit the FDIC offers?  I noticed on the CDARS website they say "ALMOST anyone can benefit from CDARS."  So just in case you aren't one of "almost everyone", you can....

Finagle your account structures into different "account categories"

Here are a few facts that you should understand that can help you max out your FDIC insurance:

The first three paragraphs are quotes from the FDIC website.

*  The FDIC insures deposits in most banks and savings associations located in the United States. The FDIC protects depositors against the loss of their deposits if an FDIC-insured bank or savings association fails. FDIC insurance is backed by the full faith and credit of the United States government.

*  The basic insurance amount is $100,000 per depositor, per insured bank except for owners of certain retirement accounts, which are insured up to $250,000 per owner, per insured bank.

*  Deposits maintained in different categories of legal ownership at the same bank can be separately insured. Therefore, it is possible to have deposits of more than $100,000 at one insured bank and still be fully insured.

There are 8 different account categories:

    * Single Accounts
    * Certain Retirement Accounts
    * Joint Accounts
    * Revocable Trust Accounts
    * Irrevocable Trust Accounts
    * Employee Benefit Plan Accounts
    * Corporation/Partnership/Unincorporated Association Accounts
    * Government Accounts

Here are the basic simple ways to maximize the average person's deposits:

First understand that each account category has its own FDIC coverage.  For example:

A "single account" is one account category which includes deposits in checking, NOW, and savings accounts, money market deposit accounts, and time deposits such as certificates of deposit (CDs).

A "joint account" is another account category.

So one way to get FDIC insurance of up to $400,000.00 between you and your spouse is to each have your own individual account, and to also have a joint account for a total of three accounts.  Your individual account is insured up to $100,000.00, your spouse's individual account is insured up to $100,000.00 and your joint account is insured up to $200,000.00 in total because each individual named on the joint account is insured up to $100,000.00 in this account category.

Then you have certain retirement accounts such as the popular IRA (Individual Retirement Account).  This category is separately insured by the FDIC up to $250,000.00.  So the insurance is starting to add up.  (So far it's as much as $650,000.00 - $850,000.00 per married couple and $350,000.00 - $450,000.00 for a single person depending on if they have a joint account with someone or not.)

Revocable and Irrevocable trust accounts are two more separate categories.  The FDIC insures $100,000.00 in deposits per beneficiary!

So if you have a person or people in mind that you wouldn't mind adding as beneficiaries of your trust, you will be adding an extra $100,000.00 in deposit insurance per lucky person.  A beneficiary can be a spouse, child, grandparent, sibling, adopted child, grandchildren, stepchildren and I'm probably even missing a few so it won't take much creativity to maximize the insured amount.

One might consider doing this temporarily for insurance purposes, or permanently.  But there are obviously other ways to get more insurance by either going to another bank and setting up additional accounts in different categories to match what you have at your original bank, or by signing up for Promontory Interfinancial Network's "CDARS".

No matter what you do, you now have no excuse.  There is nothing more important right this minute (besides health which wins by a nose in many cases) than making sure you don't end up paying for other peoples' mistakes.  You don't want your kids paying for mistakes that caused your bank to close their doors, and you certainly don't want to end up having to foreclose on your own home even though you (or your "backup family member") once had millions in a bank that unfortunately closed the doors.

I hope I've spelled it out for you clearly, and I realize I only went over the most common account categories.  For more information on this important matter, here are some useful links:

This is a link to the Electronic Deposit Insurance Estimator:

http://www4.fdic.gov/EDIE/

Here are two links to the CDARS website:

http://www.cdars.com/index.php

http://www.cdars.com/why-cdars.php

Here's the Promontory Interfinancial Network's website:

http://www.promnetwork.com/

Here's why you need to get on this RIGHT NOW!



“Profit from the Trend”

Chris Rowe
Chief Investment Officer
The Trend Rider