Should You Withdraw Your Money from Your Bank?

The news that the federal government shut down the bank IndyMac, and reopened as an institution run by the FDIC on Monday, July 14, has shocked a lot of people. This is because IndyMac was a big bank, and its closing caused some nervousness. The main question many people are asking right now is this one: What happens if my bank fails? Understandably, many people are concerned that they could lose their money if the bank fails. However, there is not a whole lot to be afraid of on that front.

Your money is probably safe

After the Great Depression, the government realized that there needed to be a way for people to feel safe about putting their money into banks. So the FDIC was created. The FDIC is a government insurance company. Banks buy insurance in order to have the government guarantee deposits made. Similarly, for credit unions, there is the NCUA, which serves the same purpose.

The idea is that if the bank fails, the government insurance program will pay back the money in the accounts. Of course, there are limits. Here are the limits to FDIC payouts:

*For individual accounts: $100,000.
*For joint accounts: $200,000.
*For retirement accounts: $250,000.

And there are other ways to further protect your money if your account exceeds these limits. Another way to protect your money is to avoid keeping it all in one bank. Instead, move put some of it in another FDIC insured bank. That way each of your accounts at the different insured banks is protected, and you are more likely to get all of your money back in the event of a bank failure. Since the government has a $53 billion fund, and the ability to raise more money as needed, you should have no problem getting your money. In fact, even though many IndyMac customers have to wait in a line and are having some small issues, most of them are having no problems recovering their money.

Why you shouldn't panic and withdraw all your money from your bank

Even though the situation is troubling, it is important not to panic. If everyone panicked and withdrew their money from their bank accounts, the bank would, in fact, fail. And this very behavior is one of the factors that caused the Great Depression. Mass panic caused a run on the banks, and that caused banks to fail as they were completely drained of all liquidity. Liquidity is even more important these days.

Before you do anything rash, check to make sure your financial institution has FDIC or NCUA insurance. And if you have more than the covered limits, see about moving a small amount of your money out and opening another account at an insured bank or credit union.