BOSTON ( TheStreet) -- With the bankruptcy of lender CIT Group ( CIT), which counted a million small and medium-sized businesses as customers, and the unrelated failure of nine banks this week, companies and consumers need to adapt to protect themselves. CIT filed for Chapter 11 bankruptcy protection earlier this week to restructure its debt. Two days earlier, the Federal Deposit Insurance Corp. ordered another round of bank closings, bringing the total number of failed U.S. banks to 115 this year. CIT, a bank holding company with more than $60 billion in assets, has been a lifeline for smaller businesses. Fortunately for traditional consumers, none of CIT's subsidiaries, including CIT Bank in Utah, will be included in bankruptcy filings. The troubles faced by CIT will undoubtedly be a boon to competitors, such as Wells Fargo ( WFC). Community banks should also benefit if they can shape product lines to meet the needs of small-business clients. Given the near-record number of failed banks this year, and the trend for even smaller banks to expand in financial services, consumers will need to know which assets are protected from disaster. The California Society of CPAs (CSC) is among organizations that advise the public on how to handle what will inevitably be more bank failures this year and next. According to the CSC, placing funds with an FDIC-insured bank no longer means all assets are covered. As banks have increasingly added financial services to increase profits, not all new products fall under federal protection guidelines.
Checking accounts (including money market deposit accounts, which aren't the same as money market mutual funds), savings accounts, certificates of deposit (CDs) and retirement accounts are eligible for FDIC protection. Investment-grade products purchased from a bank isn't entitled to the same protection. Mutual funds, annuities, stocks, bonds and Treasury securities are usually transferred to other institutions in the event of a failure. But those offerings aren't insured or otherwise protected by either the FDIC or government guidelines. Contents of safe deposit boxes also aren't protected by FDIC insurance. The CSC offers additional suggestions for consumers. Make sure a CD's value is $100,000 or less. Deposits are fully protected under federal law and FDIC rules because the basic insurance coverage is $100,000 per depositor per insured institution. Customers may qualify for more than $100,000 in coverage at one insured bank if they own deposit accounts in different "ownership categories." For example, savings and checking accounts that are individually owned will be viewed as a single account and need to fall below the $100,000 limit for full protection. A jointly owned certificate of deposit, however, will be treated as separate from those accounts, and fully protected as long as it tops out at $100,000. According to the CSC, FDIC rules for some ownership categories allow you to hold more than $100,000 in one account and still be insured. Most retirement accounts are insured up to $250,000 per owner per bank. Revocable trust accounts can be insured for up to $100,000 for each beneficiary. Accounts for five children with such an account can be insured for a total of $500,000.
In a situation where large deposits can't be divided into different ownership classes, protecting assets fully requires dividing them among separate institutions. Brokerage accounts have a level of protection that falls outside the FDIC. The Securities Investor Protection Corp., a nonprofit funded by its participating firms, can insure accounts up to $500,000. Protection applies only if a brokerage faces bankruptcy or insolvency. Market fluctuations and bad investments, as expected, receive no protection. -- Reported by Joe Mont in Boston.