How safe is the money in my bank account?

John W. Schoen Senior producer • Profile • E-mail

The failure of IndyMac Bank last week — and news that some depositors didn’t get all their money back — has a number of readers wondering: Is my bank account safe? If not, it can be with a few simple steps.

I would like to know a safe place to put my savings money. Do you have an idea? I don't feel banks are safe right now. Or am I wrong?
— Brenda, St. Petersburg, Fla.

Well, you’re not wrong to feel nervous. With banks reporting huge losses these days, a lot of people with savings in the bank are wondering the same thing.

But so far, only five banks have closed this year — out of some 8,500 banks in the U.S. And when a bank like IndyMac fails, it doesn’t disappear: it gets taken over by the government, which is then responsible for paying back all deposits that are backed by federal insurance. So you should be able to sleep well at night as long as your money is in an insured account, and you follow a few simple steps.

The most important is to make sure that your account has less than $100,000, the limit for insurance coverage by the Federal Deposit Insurance Corporation. (If you keep your savings in an Individual Retirement Account, the limit is $250,000.) Savings in credit unions are covered for the same limits by the National Credit Union Share Insurance Fund.

About 10,000 depositors at IndyMac Bank recently learned about the limit the hard way; they’ll lose about half the money in their accounts above that $100,000 limit. So keep an eye on any large accounts to make sure they stay under $100,000. If you stash away money and “forget about it,” you may go over the limit.

You also need to make sure the account is FDIC insured. Banks these days are happy to sell you all sorts of other investments through a brokerage account. Some of these are sold with the promise that they’re as “safe as cash.” But deposit insurance only covers savings like cash or certificates of deposit. Treasury bonds, for example, while also very safe, are not insured, so you can lose money if you need to sell them before they reach their maturity date.

If you have more than $100,000 outside of your IRA, you can break up your savings into separate accounts – each of which will be covered as long as the balance is under the $100,000 limit. The easiest way is to do that is to keep accounts in separate banks.

If you want to keep multiple accounts in the same bank, you can break up your savings into multiple accounts. If you’re married, you can set up two accounts in the same bank for each spouse. You can also keep a joint account and an individual account in each spouse’s name — the FDIC insures accounts in separate categories up to the coverage limits. Or you might want to move some savings to an account in your child’s name for college savings. For more on different ways an account can be titled, check the FDIC Web site.

If you do split your savings into multiple accounts, check to make sure that each one is properly titled: a mistake by the bank clerk can be expensive. If you’re unsure, ask a financial advisor or tax preparer.

For those readers who fear the worst — and believe the best place for cash is a coffee can buried in the back yard — keep in mind that if you're not earning at least some interest, you’re losing money every day. Inflation erodes the purchasing power of cash sitting in that coffee can. With six-month CDs paying about 3 percent these days, and the consumer price index up 5 percent in the past 12 months, you’re already losing 2 percent of your purchasing power.

But that’s still better than the 5 percent you’ll lose at the Backyard Coffee Can Bank & Trust.

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