Is Your Cash Safe at the Bank?

As furious IndyMac (IMB) customers waited on long lines to withdraw their funds on Tuesday -- four days after the government took over the insolvent bank -- clients of other banks have begun to worry about the fate of their cash as well.

Regulators seized IndyMac on Friday, after a run on the bank evaporated more than $1.3 billion in deposits and pushed the bank over the edge of insolvency. IndyMac had already been struggling under the pressure of liquidity issues and the tanking housing market.

Some customers became irate when informed that only up to $100,000 in personal funds would be federally insured, and those waiting outside a branch in California's San Fernando Valley were threatened with arrest, the Associated Press reported.

The Pasadena, Calif.-based bank is the second-largest to fail in the history of the Federal Deposit Insurance Corp., and while every retail bank is not on the brink of disaster, it's unclear what might happen in the months ahead.

The FDIC has a list of 90 banks in trouble, while according to data compiled by Ladenburg Thalmann analyst Richard Bove, just a few small banks hold enough bad loans to be in danger of failing. Those include Downey Financial ( DSL), Corus Bankshares ( CORS), Doral Financial ( DRL), FirstFed ( FED), BFC ( BFF) and BankUnited ( BKUNA).

Washington Mutual ( WM) was the only major national bank that Bove called "on the edge" of the "danger zone."

Still, there are sure to be more bank failures ahead as the industry struggles to contain problems from housing and mortgage assets as well as escalating credit costs. Considering that IndyMac was not even on the FDIC's list of banks in danger, there's no sure bet on which will make it out alive.

The FDIC covers up to $100,000 in a personal account, up to $100,000 per person from a joint account and up to $250,000 in retirement funds. As President Bush said on Tuesday, "You don't have to worry about it if you've got less than $100,000 in the bank," though that's cold comfort for those who saved up a large retirement nest egg -- or simply a lot of money -- and stored it all in one spot.

The California Society of CPAs reminds consumers that while checking, savings, CDs and retirement accounts are all insured, mutual funds, annuities, stocks, bonds, Treasury notes and other investment products are not. Money-market deposit accounts are covered, but money-market mutual funds are not. The contents of safe-deposit boxes also are not FDIC insured.

Consumers with several accounts at one bank -- personal, joint and retirement -- should make sure to distribute their funds to get the most protection. For instance, if a personal account has $120,000, but the joint account has $100,000, a customer can transfer at least $20,000 into the joint fund to be fully insured.

Another special case is presented by revocable trust accounts, which are meant to be passed along to beneficiaries after the owner's death. These accounts can be insured up to $100,000 for each qualifying beneficiary, with certain conditions.

It's also important to remember that if two people hold a joint account and one dies, the survivor has six months to restructure the account. After that, the account is combined with the survivor's single-ownership deposits, back down to the $100,000 limit.

Leonard Wright, chair of the society's personal financial planning committee, suggests consumers scratch 10% off the FDIC's limits when figuring out where to store their funds, otherwise they may lose interest payments. One of Wright's clients initially held $100,000 in a CD at IndyMac, which accrued interest over time. Luckily, the client was able to negotiate with FDIC representatives to recoup half of the interest payments, but some would look at the situation as a glass half empty rather than half full.

Wright suggests that consumers diversify their accounts, and consider holding funds at more than one bank if they are very concerned about insolvency. He says consumers have become complacent in the decades that passed since the savings and loan crisis of the 1980s, which caused hundreds of banks to collapse.

"Time passes and people feel comfortable with investments and putting their nest egg all in one basket," Wright says. "If they've got a couple million bucks in the bank, I suggest they move things around a bit."

Wright suggests consumers with plenty of cash diversify their investments and take a look at brokerage houses, which tend to provide "a little bit more" insurance than what is offered by traditional banks. And while clients might think the biggest brand-name banks are the safest, some of them have more exposure to risky assets than small community banks.

"There are a lot of very high-quality, local community banks that have been very boring over time," Wright says, "and boring is good."

More from Personal Finance

Summer Travel: The Best Places to Visit in the U.S.

Summer Travel: The Best Places to Visit in the U.S.

9 Best Investment Books for Beginners

9 Best Investment Books for Beginners

How to Calculate Your Net Worth and Pin Down Your Financial Health

How to Calculate Your Net Worth and Pin Down Your Financial Health

The Best States for Millennials' Money and Health

The Best States for Millennials' Money and Health

U.S. Banks Urged to Make Small Loans In Competition With Payday Lenders

U.S. Banks Urged to Make Small Loans In Competition With Payday Lenders