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Six Ideas for Insuring Your Deposits

As consumers continue to be rattled by a seemingly bottomless pit of bad financial news, they're looking for ways to ensure their entire bank deposits are covered by the Federal Deposit Insurance Corp.

It's not difficult to exceed the $100,000 limit on individual accounts, or the $250,000 limit on certain retirement accounts. In fact, the FDIC says that less than 62 percent of the $6.88 trillion on deposit in FDIC-insured banks was covered at the end of 2007. That leaves more than $2.5 trillion unprotected in the event of bank failures.

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Safe Deposit Box

Fortunately, there are many ways you can have excess deposits covered, and you should take the trouble to use one of these methods or, through your own research, find other ways. Uninsured depositors receive an average of 72 cents on the dollar when their bank fails. Imagine having excess money in a bank and losing more than a quarter of it. In addition, it can take years for the FDIC to settle a bank failure.

The six examples of excess deposit coverage that we'll highlight here primarily involve accounts at community or state-chartered banks. Some larger institutions carry their own excess deposit insurance, so if you prefer banking at larger institutions, ask if they have it. Companies such as BancInsure and Progressive Casualty Insurance provide excess deposit insurance to financial institutions. Excess share insurance is available to credit unions. But don't assume you're covered -- always ask.

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1. Depositors Insurance Fund, or DIF
Believe it or not, back in the 1930s, Massachusetts state-chartered savings banks and state-chartered cooperative banks were prohibited from belonging to the FDIC. Instead, they were required to belong to the DIF, which, back then, functioned under a different name. Over time, the state legislature allowed the state-chartered institutions to also have FDIC insurance. The DIF then became the insurer of excess deposits. Any amounts above FDIC coverage are guaranteed. There are no forms to fill out, and no separate titling of accounts is necessary. The DIF program covers 68 state-chartered savings banks.

The Share Insurance Fund, or SIF, provides the same coverage for state-chartered cooperative banks.

If you don't live in Massachusetts, you're not left out: Many of these banks allow out-of-state accounts.

"The insurance is unlimited, but we don't have $10 million customers," says David Elliott, CEO at Depositors Insurance Fund in Woburn, Mass. "When we look at our profile, it's an amount slightly above the FDIC limit. The customer, whose account started with $90,000 and through interest is up to $125,000, may not even be aware of the fact that the FDIC is insuring the first $100,000 and we're insuring the $25,000 above that."

2. Certificate of Deposit Account Registry Service, or CDARS
If you like the safety and convenience of CDs and you're nearing the FDIC limit, you may want to consider the CDARS program, if your bank offers it.

Funds above $100,000 are deposited in CDs at other banks in the network. The system is supposed to ensure the money is divided among nonrelated banks, but you should check to be certain. If you're wealthy enough, you can insure up to $50 million.

The demand for the CDARS program has grown considerably this summer, according to Mark Jacobsen, president of Promontory Interfinancial Network, the company that created CDARS.

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