Money market and mutual fund guru and MarketWatch columnist Bill Donoghue discusses FDIC insurance and uninsured deposits in his latest column, "Advice you can bank on: Uninsured deposits have no guarantees if your bank fails. Donoghue, who was perhaps the most important force in popularizing the money market fund in the late 1970's and early 1980's, says, "This is probably the most sobering, simple and useful investment advice you will ever receive: Do not leave uninsured deposits in any FDIC-insured bank account."
Donoghue urges investors to pay heed to the $100,000 FDIC insurance limit, and says, "No matter how good the coffee is at your local branch, no matter how much you fondly remember the toaster they gave you to open an account or how large the bank's office building (which they probably don't own) is, the rules are simple: you are FDIC-insured to $100,000 per person per bank." He cites a few exceptions to these rules, but we urge savers to ignore the higher limits on joint accounts and IRAs, and to act as if $100K is the maximum, period. (Of course, we prefer money market mutual funds to bank deposits too.)
We've been stunned by figures disclosing that over $2.6 trillion, or 37%, of the nation's $7.07 trillion in bank deposits is uninsured. Losses to savers from uninsured bank deposits over the past year and a half could rise to as much as $1 billion (compared to zero on money funds). (IndyMac had $1 billion in uninsured deposits, but savers have received a payment of half of their money to date.) In a past "Link of the Day" entitled, "Government shuts down IndyMac," we quoted the Wall Street Journal story "Bank Fears Spread After Seizure of IndyMac", "[T]he percentage of uninsured deposits has doubled since 1992, climbing to about 37% of the nation's $7.07 trillion in deposits at the end of the first quarter."
In addition to reading Donoghue's excellent article, we suggest browsing the reader comments below the story. These indicate widespread confusion and misinformation about FDIC insurance, SPIC insurance, and uninsured money market mutual funds, and mutual funds in general. It's clear that savers and investors have ignored every warning issued to them and that Donoghue could use some assistance in reviewing the various protections that investors may or may not have. (See also our brief on a previous Donoghue story, "Money funds are likely to be safer than uninsured bank deposits.")
