Heed bank guidelines and failure won't hurt nest egg for that home

SMART MOVES

December 02, 1990|By ELLEN JAMES

For young couples or singles in pursuit of a first home, the headlines in their local business sections about the problems besetting banks have suddenly taken on new meaning. The question that looms: If my bank fails, what will happen to my savings?

Issues related to bank failure are no longer academic.

In light of the savings and loan debacle, prospective homebuyers and other Americans are willing to believe the worst about the country's financial institutions and the federal insurance programs that back them. They're beginning to cast a skeptical eye on banks they once trusted unquestionably and news reports seem to justify their worry.

They read recently, for instance, about the failure of New York's Freedom National Bank and how the bank's depositors bundled themselves in thick coats, hats and scarves -- braving the chill of November tocollect their money.

What if that had been your bank? Would you have to wait in line to get your money back or apply through some bureaucratic mechanism? Worse, would you lose your savings altogether?

Financial specialists say most prospective homebuyers can spare themselves the stress of wondering if their savings will be lost. As long as you heed a few basic guidelines, your funds should be secure even if the bank you've selected should fail, they say.

"I really don't think people should panic about their banks," says financial planner Bernard R. Wolfe of Rockville.

"I'm not confident in any individual institution being solvent. But I am confident that the government will pay depositors off when an institution fails," says Edmund Mierzwinski, an official of the U.S. Public Interest Research Group, a Washington-based consumer organization.

At the Federal Deposit Insurance Corporation in Washington, which insures deposits at 12,900 U.S. financial institutions, the message of depositor safety is underlined by spokesman David Barr. "The government puts its full faith and credit behind the deposit insurance system," he insists.

Still, financial specialists say there are good reasons why you as a homebuyer should exercise caution in selecting a bank to entrust with your nest egg. And they say you should be careful to heed guidelines from the FDIC about which accounts are insured by the government and to what extent.

"It's very important to stay abreast of what's happening to your institution and to be sure your money is in insured deposits," says Kitty Heller, president of Veribanc Inc. in Wakefield, Mass., a bank research firm.

Ms. Heller and others familiar with the FDIC's rules on bank deposits say they can be tricky and that some depositors have been falsely led to believe that their funds were insured by the FDIC when, in fact, they were not. What complicates matters is that bank employees themselves often pass on mistaken information about FDIC rules, Ms. Heller says.

An easy rule of thumb suggested by financial specialists is to be sure you have no more than $100,000 on deposit in any given FDIC-insured institution. Another, offered by Ms. Heller, is to seek a written statement that your deposits are FDIC-insured from a senior manager at the bank.

Although the manager's statement is unlikely to carry much weight legally if the institution fails, it's more likely to provide an accurate reflection of FDIC coverage than information provided by lower-level employees, Ms. Heller contends.

While the chance of losing funds that are kept in a bona fide FDIC-insured bank is remote, Ms. Heller says there still are good reasons for you to be concerned about the financial condition of the institution where you put your money.

One reason is convenience. Probably you'd rather not be one of those who bundled up to face the November cold to retrieve their money from a Freedom Bank. Even if you're assured that the money is retrievable, you dislike the hassle. And the hassle can include extra government forms and complications if you're not able to readily provide two forms of identification and some records of your account.

Once you've retrieved your funds from the failed bank, you have the hassle of finding a new home for your savings. "It doesn't matter if you're the president of a company or a secretary, you don't want to be changing banks," says Mr. Wolfe, the Rockville financial planner.

More than 200 FDIC institutions failed last year, but the reality is that most of the transitions were handled very smoothly, says Mr. Barr, the FDIC spokesman.

"In more than 90 percent of the cases there was no interruptions in service to customers. Usually a bank closes on a Thursday or Friday evening and then reopens the next business morning as the branch of another bank," he says. "Sometimes the depositors don't even know there was a change."

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