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Getting to Know the FDIC

You may have heard that the banking industry isn't looking so hot right now. If your bank goes under, just how much do you stand to lose personally, though? You probably know that the Federal Deposit Insurance Corporation protects your money, but how much and through what avenues? Let's take a look at the FDIC:

Don't panic. While we may sneer at the major missteps our contemporary bankers have been making, things were much, much worse in the 19th century. The whole notion of banking as we know it is based upon what's known as a fractional reserve system. This means that when you deposit your cash at a bank, the bank doesn't simply stick it in a safe until you come back to ask for it. Instead, they take some of your dough and buy securities and make loans. The bank holds only a fraction of its deposits in reserve, and the economy grows because banks can effectively use the unreserved fraction to "create" new money. It's a supremely effective system. That is, unless everyone tries to get their cash out at once, in which case the bank wouldn't have enough money to pay all of its depositors.

bank-run.jpgThese scenarios popped up from time to time throughout the 19th century. Depositors would start to worry that their bank might become insolvent, so they'd go pull out their money. As more and more people did this, the bank actually got closer and closer to insolvency, so there was an ever-stronger incentive for all depositors to get their cash back, which would effectively crash the bank.

Problems like these persisted into the 20th century, and like a lot of financial woes, peaked in 1933 when over 4,000 banks collapsed. With such systemic bank failure, people didn't want to put their money in banks, and the government needed to intervene somehow to restore faith. Congress did so by passing the Glass-Steagall Act of 1933, which created the FDIC to insure individual deposits up to $10,000. The FDIC would fund such guarantees by collecting premiums from banks. Although bankers weren't too hot on the idea of bailing each other out of hot water, the FDIC soon counted most of the country's banks among its members.

So what's the limit now? The FDIC's ceiling for insuring accounts at member institutions has gradually grown from the original $10,000. As of 1980, each account was taken care of up to $100,000, and following our latest rocky economic times the limit's been temporarily bumped up to $250,000 per account.

What exactly is insured? As of right now, you're covered for up to $250,000 on your deposit accounts at member banks. This means that your checking account, savings account, money market deposit accounts, and certificates of deposit are all safe up to $250,000 total. You should know that it's cumulative, though, not per account; if you've got $200,000 in a checking account and $100,000 in a savings account, only $250,000 of your cash is totally insured. If you've got accounts at separate banks, each one is insured for up to $250,000; if you've got $250,000 in a checking account at Chase and $250,000 in a checking account at Citi, both are completely covered. (You might want to spend some of that dough to hire someone who can help you manage your money a little better, though; that's a lot of cash to have in checking accounts.)

On top of that, if you have deposits in various categories of accounts, they can be insured separately, so things like your IRAs are also taken care of up to $250,000.

So what isn't insured? Everything else. Your stocks, bonds, mutual funds, annuities, Treasury securities, and life insurance policies aren't covered, even if you bought them from an FDIC-insured bank.

Also, the stuff in your safe deposit box isn't covered since it's not a "deposit" in the standard sense of the word. Usually when a bank goes under another swoops in to take it over, though, and then the acquiring bank will hang onto your stuff for you. In the event that another bank doesn't take acquired the failed bank, the FDIC will send you instructions for how to clean out your box. The federal government really has little interest in absconding with the passport you left there for safekeeping.

Can I outsmart the FDIC's limits? At a single bank? No. You can't circumvent the caps by including your middle initial in your banking records or changing the "and" to an "or" in the joint account you share with your spouse. If you need coverage above and beyond the current $250,000 cap in any category of account, you'll have to open up an account at a separate bank.

indymacfront.jpgWhat happens to whatever deposits I had over the cap? Don't worry; you probably won't lose all of it. The FDIC continues to insure beyond the caps; it's just not 100% dollar-for-dollar coverage. For instance, when IndyMac Bank failed earlier this summer, roughly 5% of its $19 billion in deposits was over the limit. The FDIC paid depositors for 50% of their uninsured funds.

However, the FDIC doesn't work just like a regular insurance company; it actively tries to get another bank to take over failed institutions. In these cases, the purchasing institution takes over the failed banks' liabilities (like your deposits) and also gets some of the bank's assets (like outstanding loans). In this case, the depositors can end up getting more of their uninsured cash back. A story that ran in the San Francisco Chronicle last weekend said that in recent years depositors in failed banks have gotten around 72% of their uninsured funds back. Sure, losing that 28% hurts, but as anyone who had money in a failed pre-FDIC bank could have told you, it's a lot better than taking a 100% hit.

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Bleat Along to Classic Holiday Tunes With This Goat Christmas Album
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Feeling a little Grinchy this month? The Sweden branch of ActionAid, an international charity dedicated to fighting global poverty, wants to goat—errr ... goad—you into the Christmas spirit with their animal-focused holiday album: All I Want for Christmas is a Goat.

Fittingly, it features the shriek-filled vocal stylings of a group of festive farm animals bleating out classics like “Jingle Bells,” “Rudolph the Red-Nosed Reindeer,” and “O Come All Ye Faithful.” The recording may sound like a silly novelty release, but there's a serious cause behind it: It’s intended to remind listeners how the animals benefit impoverished communities. Goats can live in arid nations that are too dry for farming, and they provide their owners with milk and wool. In fact, the only thing they can't seem to do is, well, sing. 

You can purchase All I Want for Christmas is a Goat on iTunes and Spotify, or listen to a few songs from its eight-track selection below.

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What Are the 12 Days of Christmas?
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Everyone knows to expect a partridge in a pear tree from your true love on the first day of Christmas ... But when is the first day of Christmas?

You'd think that the 12 days of Christmas would lead up to the big day—that's how countdowns work, as any year-end list would illustrate—but in Western Christianity, "Christmas" actually begins on December 25th and ends on January 5th. According to liturgy, the 12 days signify the time in between the birth of Christ and the night before Epiphany, which is the day the Magi visited bearing gifts. This is also called "Twelfth Night." (Epiphany is marked in most Western Christian traditions as happening on January 6th, and in some countries, the 12 days begin on December 26th.)

As for the ubiquitous song, it is said to be French in origin and was first printed in England in 1780. Rumors spread that it was a coded guide for Catholics who had to study their faith in secret in 16th-century England when Catholicism was against the law. According to the Christian Resource Institute, the legend is that "The 'true love' mentioned in the song is not an earthly suitor, but refers to God Himself. The 'me' who receives the presents refers to every baptized person who is part of the Christian Faith. Each of the 'days' represents some aspect of the Christian Faith that was important for children to learn."

In debunking that story, Snopes excerpted a 1998 email that lists what each object in the song supposedly symbolizes:

2 Turtle Doves = the Old and New Testaments
3 French Hens = Faith, Hope and Charity, the Theological Virtues
4 Calling Birds = the Four Gospels and/or the Four Evangelists
5 Golden Rings = the first Five Books of the Old Testament, the "Pentateuch", which gives the history of man's fall from grace.
6 Geese A-laying = the six days of creation
7 Swans A-swimming = the seven gifts of the Holy Spirit, the seven sacraments
8 Maids A-milking = the eight beatitudes
9 Ladies Dancing = the nine Fruits of the Holy Spirit
10 Lords A-leaping = the ten commandments
11 Pipers Piping = the eleven faithful apostles
12 Drummers Drumming = the twelve points of doctrine in the Apostle's Creed

There is pretty much no historical evidence pointing to the song's secret history, although the arguments for the legend are compelling. In all likelihood, the song's "code" was invented retroactively.

Hidden meaning or not, one thing is definitely certain: You have "The Twelve Days of Christmas" stuck in your head right now.

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