FDIC

By Jennifer Calonia

An overall struggling economy continues to push banks into the red. Factors like the receding housing market, continually increasing loan defaults and a 9.1 percent national unemployment rate have contributed to American’s inability to keep in good standing with their loans. The increased level of defaults have played a harsh, cyclical role in 2011 bank failures.

The Aftermath of The First National Bank of Florida

To the everyday person, the differences between national and even local banks and credit unions are subtle but important. The key difference, however, is that banks are for-profit and investor owned financial institutions, whereas credit unions are not-for-profit and member owned. As such, credit unions have different bottom-lines, loyalties and tax exemptions than banks. Here are some of the ways choosing a credit union could benefit you, as well as a few reasons why you might want to stick to banks:

Pro: Credit Unions Look After Their Members

Certificates of deposit (CDs) are one of the safest investments on the market, in large part because they are insured by government agencies. In commercial banks, your CD is insured by the FDIC. If you purchase your CD from a credit union, your investment is insured by the National Credit Union Association or NCUA.

Credit Union Insurance

For years investors having been putting their hard earned cash into US Savings Bonds as they are known as a safe and secure way to diversify investment portfolios and are possibly one of the best insured investments. But what makes them so safe? Is it the backing by the FDIC or is it having the strength of Federal government behind them?

Are Bonds FDIC Insured?

Many people argue over whether banks or credit unions are the best banking choice, citing reasons like convenience, customer service and interest rates. What’s never discussed, however, is the way in which accounts held by these institutions are insured. Bank accounts are insured by the FDIC, while a completely different agency, the NCUA, insures credit union deposits.

So are there significant differences between the two agencies? Is one form of insurance more reliable than the other?

The Federal Deposit Insurance Corporation (FDIC) recently issued a warning to people who have delinquent loans with failed banks that they may receive a call to collect the money. However, borrowers should be warned that the calls are being initiated by scammers and not the actual government entity.

The FDIC Isn’t Calling to Collect

Was it ever? Just kidding, folks.

Arguably, no industry’s reputation took a harder hit during this recession than banks. By now, you probably have the idea in your head of some miserly Mr. Potter from It’s a Wonderful Life trying to overdraft you into poverty, all the while some Gordon Gekko from Wall Street is responsible for foreclosing on your grandmother’s house.

It’s not your fault. The bad banks have no one to blame but themselves for the image mess they’re in. They padded their profits at the cost of their trusting customers through secret fees and even more secret financial products.

In an effort to help individuals identified as unbanked and underbanked open savings accounts, a new pilot program was created by the FDIC. The program will be identified by participating banking institutions as the FDIC Model Safe Accounts Template and will offer safe, low-cost transactional and savings accounts to lower-income households.

Some products to be offered include specific electronic deposit accounts that may not charge fees for insufficient funds or overdrafts. The hope with this new program is that in addition to good savings account rates, customers will have an opportunity to build credit and work toward financial security (Loan Safe).

The Federal Deposit Insurance Corp. recently announced that a Minnesota bank closure moved the total number of failed banks for 2010 past 100, well past the 85 failures in June.

The Community Security Bank of New Prague was the 101st small, regional bank to fail this year, showing the lingering effects of the financial crisis. While bank failures are current higher than they were at this time last year, the FDIC expects the wave to peak sometime this year, especially since lending activity has picked up some, more people are acquiring bank accounts and many trouble firms have acquired new sources of capital (CNN Money).

On Wednesday, July 21, President Barack Obama signed the Wall Street reform bill into law. After several months of negotiating among lawmakers in Congress, the road to come to a final resolution was not an easy one. But now we have been given a sweeping overhaul that will make more changes to the financial sector than we’ve seen since the 1930s. With the financial reform bill being signed into law, it’s time to take a look at what changes have taken place.