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During the past few years, there have been a lot of tremors in the banking industry, with many banks finding themselves on shaky ground. As consumers, how well is our money protected during a crisis that has plagued our large financial establishments and institutions?

Usually, banks fail when they are unable to pay or meet their obligations towards their customers. In the United States, almost all the banks are insured; it means that they are well governed by the rules and regulations of the Federal Deposit Insurance Corporation, also known as the FDIC. During the 80’s and 90’s, the world faced some of its biggest financial challenges when major S & L (Savings and Loans) institutions collapsed. It was then that many of us may have first become aware of the FDIC, which has the aim of safeguarding the money of bank depositors. The FDIC is a self-regulating federal agency formed to support financial liquidity and stability in the nation’s banking system.

Know what happens when a bank fails? The moment any bank declares bankruptcy, the FDIC comes into play and it immediately starts searching for possible buyers for the bank, in consultation with the central bank and the government. In the meantime, the FDIC, which has insured a sum of $250,000 per individual account, begins covering bank depositors. But what happens when there are no buyers lined up for an ailing bank? As long as there are funds in the FDIC’s coffers, then depositors can still expect full coverage up to the maximum amount of FDIC insurance per account they own. But anything beyond those limits will not be covered, so we are advised, as consumers, to deposit money in multiple accounts (perhaps across several savings accounts, CDs or high yield checking accounts) to keep our funds below those limits.

Naturally, the focus on the FDIC intensifies during difficult financial times. You can expect the FDIC to step in when a bank is in trouble. FDIC plays two major roles: it acts as an insurer to the depositors and pays up to the limit of insurance and secondly, it acts as a mentor of the bank to help it to come out of bankruptcy. FDIC pays the insured from a pool funded by insurance premiums already collected from its bank members, along with earnings made by this pool in various fixed income investments.

In principle, this practice of safe guarding the depositor’s financial interests certainly shores up our confidence in our banks, but there is always the concern that an implosion in the banking industry could result in many banks failing all at the same time. What happens then? For instance, in one previous year, the FDIC started its pool with approximately $53 billion, but by the end of the year it had fallen to just $40 billion due to the bankruptcy of 13 major banks. The Federal Reserve maintains a “troubled banks list and in it, there are 117 banks registered. Could all these banks go belly up? Well this remains to be seen, but in order to protect the banks’ depositors, the FDIC continues to increase its efforts by increasing its pool and finding new investments for their funds.

This guest post comes from Michael, a contributing editor of the Dough Roller, a personal finance and investing blog, and Credit Card Offers IQ, a credit card review site.

Every American has a dream of one day owning their own successful and profitable business. Usually when you think of self-owned businesses, you imagine dry-cleaners, restaurants and law and medical practices.  But how many people do you think wake up in the morning wanting to start their own bank?  The venture is not as difficult as it may sound.

It’s no secret that the US government right now is shutting down bank after bank.  But if you have a strong business sense and the dedication to see it through, there’s no better time than the present to get into the banking industry.  On the surface, the task at hand may seem extremely daunting, but the beauty about owning a bank is that it’s just like owning any other small business venture; Take one step at a time.

STEP 1 – Evaluate Your Assets

In order to start you’re bank, a few things are needed in the “idea” process.  Unless you are extremely confident about your financial position, this is not the business for you.  When deciding whether or not you’ve got the right idea, you should ask the following questions:

• Will I be able to raise the necessary capital in order to start a charter bank? Different states require different capital amounts to open a bank, but a safe number is $10 million.
• What sets my bank apart from others in the area? In order to have a successful bank, you need to have a large customer base and that doesn’t come easy.  Does your bank offer a higher interest rate than others?  Does it provide better and friendlier customer service?  No matter where you decide to open your charter bank, make sure it will be a welcomed community asset.
• Do I have the skill set to run a bank? If you’re educational background is in turf management, then the dream of owning a bank probably isn’t the right one.  Owning and operating a charter bank takes a huge amount of financial knowledge, and unless you know it all, move on to something else.

STEP 2 – Research the State Requirements

The quickest and easiest step in the process, knowing exactly what is needed in order to operate a bank in your state is crucial.  There’s nothing more deflating then thinking you’ve got it all figured out, only to find out that you haven’t followed procedure.  The state requirements can usually be found at the Department of Financial Institutions and if you don’t know where that is, any state employee will gladly point you in the right direction.

STEP 3 – Develop a Fundraising Plan and Employment Plan

Finally getting into the meat and potatoes portion of the idea, this is the step where you find out if your dream can become a reality.  How are you going to generate the necessary capital in order to open this charter bank?  Just as importantly, who are going to be the people in the executive positions making the tough decisions?

Raising a large amount of money means having excellent personal skills and excellent “salesman” skills.  The bank you have envisioned better have one awesome set of ideals in order to not only raise this kind of money but to attract a high caliber employee away from another company.

STEP 4 – Fill Out the Required Paperwork for Approval

Once you feel you have the entire package in place, the next thing to do is generate an approval from the state.  After filling out a quick form online or in person, you can expect to receive a thick packet in the mail with all of the required paperwork.  Included in this packet are:

• Financial questionnaires
• Financial reporting sheets
• Eligibility checklists
• The request for your business plan
• The request for your financial and employment plan
• The request for your bank’s proposal

Making sure that you have filled everything out to its absolute potential, mail the documents back to the state and play the waiting game.  Most applications are returned in a few weeks, but the process has been known to take up-to three full months.

STEP 5 – Make It Happen

With approval from the state, the only thing left to do is execute.  Raising money, building your bank (or your website if you are looking at an online bank), hiring employees and developing a marketing strategy are all now on your to-do-list.  Depending on your efficiency, the dream of owning you own bank could be more realistic than you ever thought possible.

Since 2005, the popularity of an alternative to classic banking has emerged: the prepaid debit card. Many individuals have decided to drop their regular bank account and go with this option. Is it really worth it? Do you really save on fees? Is it that convenient? And more importantly, should you switch your bank account to a prepaid debit card?

A recent study from Breton Woods made an interesting comparison between the 2 banking options. It shows that in some cases, the prepaid debit card can turn out to be a great solution. In fact, they even claimed that “consumers who opt to use a network branded prepaid card could save 35-70% on fees as compared to low balance checking and debit accounts, making prepaid cards a far more valuable, cost-effective financial tool for many.”

The comparison reveals that:

• A typical consumer with a low balance checking account can expect to pay $200 to $350 annually in the form of overdraft fees, ATM fees, and minimum balance fees.
• Consumers using a system of money orders, check cashing and bill payment services can pay anywhere between $167 to $312 annually in various fees.
• A consumer using prepaid debit cards without direct deposit can pay $215 to $320 in annual fees.
• Users of prepaid debit card with direct deposit may pay between $108 to $207 in annual fees. For customers in the same income zone and usage patterns, this option may save a consumer about $96 to $146 over a basic checking account.

However, I would say that if you tend to manage your bank account responsibly, it will be cheaper for you to use a regular account. While the prepaid debit cards are easy to use and can help you manage your budget (since you can’t spend more than what is on it), the overall fees are quite high compared to a regular checking account (keeping in mind that you should avoid overdraft and NSF fees).

Which option is best for you?

If you want to make an educated choice, I suggest you take the time to read the Breton Woods study on this topic. Personally, I still prefer the regular checking account as it is easier for me to manage (I don’t have to load my card with money every month) and I pay minimal fees (because I always meet the minimum balance requirement).  Lastly, I should mention that the manner by which you manage your budget / cashflow could influence which choice is best for you.

We had a fun and busy weekend. We went to celebrate family friends’ 30th anniversary. All in all it went well, but while driving up, we hit a snag. We’re about an hour and a half from our destination and decided to take a quick break and grab a snack. I ask my husband to pass me my purse, but he didn’t see it. After looking around for 10 minutes, we realize it’s not with us!

Report your debit card as soon as you realize it's missing or stolen.

Reporting My Missing Debit Cards

I was 99% sure it was still inside the apartment, but I didn’t want to take a chance for that 1%.  I immediately called the banks to freeze my cards until I can either verify they are at the apartment or stolen. I called Wachovia first. I was on hold hold a quite a bit, but when I did get my customer service representative, she was sweet. I explained my situation and she placed a hold/freeze on my debit card.

I then called ING Direct to do the same thing. They told me that was not possible and besides calling in every day to check, I could have a new one sent to me in approximately 5 business days. Since this was a short trip (2 days), I decided not to get a new card.

Liability for Debit Cards

The Federal Trade Commission(1-877-FTC-HELP) notes that credit card liability is $50, but it can be more for debit card, depending on how quickly you report it stolen.

…if you report the loss within two business days after you realize your card is missing, you will not be responsible for more than $50 for unauthorized use. However, if you don’t report the loss within two business days after you discover the loss, you could lose up to $500 because of an unauthorized transfer. You also risk unlimited loss if you fail to report an unauthorized transfer within 60 days after your bank statement containing unauthorized use is mailed to you.

I think most people will fall in the first or second category.  I can’t imagine too many people waiting more than 60 days, unless they are overseas and left their debit card at home.

Found my Purse!

I came home and it was right on the counter in the kitchen. Relieved, I called my bank to take the hold off my check card. I didn’t have to wait long (3 minutes) and my customer service representative was pleasant. He told me that they need to verify my identity before unfreezing the card. I went ahead and answered their security questions.

Unfreezing the Hold with Security Questions

The security questions were from my credit report. I found a couple questions bad to ask such as the birth month of a person since both my father and brother share the same first and last name. Which do I pick? It also had an incorrect address listed, but since I knew of this mistake, I have the the ‘right’ answer.

After verifying who I was and unfreezing my check card, the customer service representative asked if I wanted a Wachovia credit card. I politely declined, so he thanked me for being a customer.

Have you lost or had your check card stolen? Did your bank or credit union work with you?

Photo Credit: liewcf

Last week week I signed up for Wachovia’s Way2 Save  program to try and stow away some money at a higher rate than ING Direct.  I can save some money at 5% APY and receive a bonus from the bank on my anniversary day. It’s been saving mode here at home and I want to sock away as much as possible. My temporary job is over and we managed to deposit $1,650 away in our joint savings.

We’re proud of it, but we’re hoping to build it up more by year’s end.

What are the Way2Save?

There are three ways to get money into my Way2Save account:

• Use my Wachovia Check Card for purchases
• Use Wachovia’s Online Bill Pay
• Make automatic payments

Wachovia moves $1 from your checking to your savings whenever you use the bill payment service and use the debit card. You can also set up an automatic monthly deposit up to $100.

Since I use online bill pay, I thought this would be an easy way for me to deposit money into the account. If I set up some automatic transfers that would help build up the emergency fund savings just a little bit more.

What’s a Good Way2Save?

Of course, I’m just as I’m feeling good about joining this program, I catch a tweet from Consumerist today about Wachovia’s program. Someone used the basic rules to see if they could deposit more by sending several small payments. Instead it backfired and she ended up with $5,000  to pay.

Well, I’m not going to focus on using bill pay for deposits. I’ll stick with automatic deposits.

Photo Credit: Neubie

I was reading an article in the NY Times last and saw something that will affect us. Some of the larger banks announced that they are lowering their overdraft fees. This is something we’ll keep in mind as we bank with Wachovia (bought by Wells Fargo).

Why are the banks lowering their overdraft fees?

The moves come as lawmakers and regulators in Washington push proposals to reform what critics say are excessive charges of which consumers are unaware. The penalties, known as overdraft fees, bring the banking industry tens of billions of dollars in revenue annually.

What does this mean for you?

Chase and Wells Fargo will cancel fees for accounts overdrawn by $5 or less, according to separate statements. Bank of America will end fees on accounts that are short $10 or less, it said in a statement.

Try online banks as a alternative or supplement

For some people this is a bit of too little, too late. If you want to lower fees and better customer service, look at some of the online banks, like ING Direct. They can offer features that can be a huge improvement over some brick and mortar banks.

Here what I personally like about ING’s Electric Orange checking account:

• No fees. There’s no minimum balance on the account.
• If the money is not in the account, they won’t pay the bill.
• Earn real interest.

Even if you don’t use it as your main bank, you may have your savings account over there to test the waters. That’s what we did when we tried ING Direct out.

There are several other high interest savings accounts, if you are looking for other options. Don’t forget to check out their current rates. Just open an account somewhere that you feel comfortable, won’t get feed for everything, and can grow your money.

• HSBC Direct
• Emigrant Direct
• Citibank Direct
• Capital One

What do you think? Will lower overdraft fees affect your choice in banking?