How safe is my money in a bank account or a cd?

This is an excellent question because the answer might be one that surprises many. Most people feel their money is safe in a bank account or certificate of deposit (CD) as long as the depository bank has its deposits insured by the Federal Deposit Insurance Corporation (FDIC). But those of us who were around during the savings and loan (S & L) crisis of the late 1980’s remember the insolvency of many S & Ls, their inability to return deposits to depositors, and the subsequent failure of the FSLIC (the federal corporation established as a parallel institution to the FDIC to insure the deposits of S & Ls) to make good on their insurance of those deposits. The FSLIC then became insolvent as well, and merged into the FDIC. The FDIC bravely attempted to assure former S & L depositors that their deposits would be returned, but they could not say when, and they could certainly say that there would be no interest paid on those deposits.

Many S & L depositors learned the sad truth, that their money wasn’t as safe as they’d thought. And though they did receive their deposits back eventually (some more eventual than others), it wasn’t really the FDIC that accomplished this deposit remuneration, it was the taxpayers who shouldered the bailout then, just as they have done in more recent times for the sake of other acronyms (TARP).

The lesson learned then was not to become complacent about federal insurers, read the bank’s prospectus, study their balance sheet, and deposit where you would if there were no insurance at all.

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