You are not the only one, if you are recoiled by the name of IndyMac. In the summer of 2008 after the failure of several banks, a rumor busted that IndyMac Bank was in hot waters. Consequently, the IndyMac Bank customers became more cautious about the providence of their funds.
When they started to gather outside the bank in a distressed endeavor to get their money back, the other people also came to know about this. They also started to worry about what would happen, if their own bank failed.
If you have knowledge about the operations of a bank, you must be well aware when you diverge over your paycheck, the sum does not just congregate dust in a vault waiting for you to come back and get it.
The banks are not simply the care takers for your finances. They accept the money you deposit and try to make more money with it. This without doubt entails a risk. If all goes well, they only make smart risks.
To earn a profit, banks invest your money and also lend it to people and charge interest on these loans. This interest is also their profit.
Most of the times, this system works smoothly. Though the chances of breakdown of your bank are exceptionally low, but there is exception to everything, especially when something unpredictable happens.
It is also possible that your bank makes some wrong decisions and loses a lot of money in a short time. When you come to learn this bad news, the chunk of your money may already have gone. The positive thinking is that you perhaps don’t need to worry much.
You can rely on the U.S. Government to reimburse at least a fixable part of your loss.
The government insurance dates back to the great depression of 1930s. People were horrified about what their banks were doing with their money. As soon as they come to know about the default of local bank, everyone would hurry to the bank to withdraw as much as he could. This is known as bank run.
It was quite obvious that bank could not return the whole money. When bank run became uncontrolled, President Roosevelt and his new deal came in to try to help. This resulted in the formulation of Federal Deposit Insurance Corporation (FDIC) which insures account against bank failure.
Understanding what the FDIC does and how much you can expect back in the event of a bank failure can help you make smarter choices with your funds.
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