Getting to Know the FDIC

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Getty Images

You may have heard that the banking industry isn't looking so hot right now. If your bank goes under, just how much do you stand to lose personally, though? You probably know that the Federal Deposit Insurance Corporation protects your money, but how much and through what avenues? Let's take a look at the FDIC:

Don't panic. While we may sneer at the major missteps our contemporary bankers have been making, things were much, much worse in the 19th century. The whole notion of banking as we know it is based upon what's known as a fractional reserve system. This means that when you deposit your cash at a bank, the bank doesn't simply stick it in a safe until you come back to ask for it. Instead, they take some of your dough and buy securities and make loans. The bank holds only a fraction of its deposits in reserve, and the economy grows because banks can effectively use the unreserved fraction to "create" new money. It's a supremely effective system. That is, unless everyone tries to get their cash out at once, in which case the bank wouldn't have enough money to pay all of its depositors.

These scenarios popped up from time to time throughout the 19th century. Depositors would start to worry that their bank might become insolvent, so they'd go pull out their money. As more and more people did this, the bank actually got closer and closer to insolvency, so there was an ever-stronger incentive for all depositors to get their cash back, which would effectively crash the bank.

Problems like these persisted into the 20th century, and like a lot of financial woes, peaked in 1933 when over 4,000 banks collapsed. With such systemic bank failure, people didn't want to put their money in banks, and the government needed to intervene somehow to restore faith. Congress did so by passing the Glass-Steagall Act of 1933, which created the FDIC to insure individual deposits up to $10,000. The FDIC would fund such guarantees by collecting premiums from banks. Although bankers weren't too hot on the idea of bailing each other out of hot water, the FDIC soon counted most of the country's banks among its members.

So what's the limit now? The FDIC's ceiling for insuring accounts at member institutions has gradually grown from the original $10,000. As of 1980, each account was taken care of up to $100,000, and following our latest rocky economic times the limit's been temporarily bumped up to $250,000 per account.

What exactly is insured? As of right now, you're covered for up to $250,000 on your deposit accounts at member banks. This means that your checking account, savings account, money market deposit accounts, and certificates of deposit are all safe up to $250,000 total. You should know that it's cumulative, though, not per account; if you've got $200,000 in a checking account and $100,000 in a savings account, only $250,000 of your cash is totally insured. If you've got accounts at separate banks, each one is insured for up to $250,000; if you've got $250,000 in a checking account at Chase and $250,000 in a checking account at Citi, both are completely covered. (You might want to spend some of that dough to hire someone who can help you manage your money a little better, though; that's a lot of cash to have in checking accounts.)

On top of that, if you have deposits in various categories of accounts, they can be insured separately, so things like your IRAs are also taken care of up to $250,000.

So what isn't insured? Everything else. Your stocks, bonds, mutual funds, annuities, Treasury securities, and life insurance policies aren't covered, even if you bought them from an FDIC-insured bank.

Also, the stuff in your safe deposit box isn't covered since it's not a "deposit" in the standard sense of the word. Usually when a bank goes under another swoops in to take it over, though, and then the acquiring bank will hang onto your stuff for you. In the event that another bank doesn't take acquired the failed bank, the FDIC will send you instructions for how to clean out your box. The federal government really has little interest in absconding with the passport you left there for safekeeping.

Can I outsmart the FDIC's limits? At a single bank? No. You can't circumvent the caps by including your middle initial in your banking records or changing the "and" to an "or" in the joint account you share with your spouse. If you need coverage above and beyond the current $250,000 cap in any category of account, you'll have to open up an account at a separate bank.

What happens to whatever deposits I had over the cap? Don't worry; you probably won't lose all of it. The FDIC continues to insure beyond the caps; it's just not 100% dollar-for-dollar coverage. For instance, when IndyMac Bank failed earlier this summer, roughly 5% of its $19 billion in deposits was over the limit. The FDIC paid depositors for 50% of their uninsured funds.

However, the FDIC doesn't work just like a regular insurance company; it actively tries to get another bank to take over failed institutions. In these cases, the purchasing institution takes over the failed banks' liabilities (like your deposits) and also gets some of the bank's assets (like outstanding loans). In this case, the depositors can end up getting more of their uninsured cash back. A story that ran in the San Francisco Chronicle last weekend said that in recent years depositors in failed banks have gotten around 72% of their uninsured funds back. Sure, losing that 28% hurts, but as anyone who had money in a failed pre-FDIC bank could have told you, it's a lot better than taking a 100% hit.

Turn Your LEGO Bricks Into a Drone With the Flybrix Drone Kit

Flyxbrix/FatBrain
Flyxbrix/FatBrain

Now more than ever, it’s important to have a good hobby. Of course, a lot of people—maybe even you—have been obsessed with learning TikTok dances and baking sourdough bread for the last few months, but those hobbies can wear out their welcome pretty fast. So if you or someone you love is looking for something that’s a little more intellectually stimulating, you need to check out the Flybrix LEGO drone kit from Fat Brain Toys.

What is a Flybrix LEGO Drone Kit?

The Flybrix drone kit lets you build your own drones out of LEGO bricks and fly them around your house using your smartphone as a remote control (via Bluetooth). The kit itself comes with absolutely everything you need to start flying almost immediately, including a bag of 56-plus LEGO bricks, a LEGO figure pilot, eight quick-connect motors, eight propellers, a propeller wrench, a pre-programmed Flybrix flight board PCB, a USB data cord, a LiPo battery, and a USB LiPo battery charger. All you’ll have to do is download the Flybrix Configuration Software, the Bluetooth Flight Control App, and access online instructions and tutorials.

Experiment with your own designs.

The Flybrix LEGO drone kit is specifically designed to promote exploration and experimentation. All the components are tough and can totally withstand a few crash landings, so you can build and rebuild your own drones until you come up with the perfect design. Then you can do it all again. Try different motor arrangements, add your own LEGO bricks, experiment with different shapes—this kit is a wannabe engineer’s dream.

For the more advanced STEM learners out there, Flybrix lets you experiment with coding and block-based coding. It uses an arduino-based hackable circuit board, and the Flybrix app has advanced features that let you try your hand at software design.

Who is the Flybrix LEGO Drone Kit for?

Flybrix is a really fun way to introduce a number of core STEM concepts, which makes it ideal for kids—and technically, that’s who it was designed for. But because engineering and coding can get a little complicated, the recommended age for independent experimentation is 13 and up. However, kids younger than 13 can certainly work on Flybrix drones with the help of their parents. In fact, it actually makes a fantastic family hobby.

Ready to start building your own LEGO drones? Click here to order your Flybrix kit today for $198.

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The Best Way to Defer Your Credit Card Payments During the Coronavirus Shutdown, Explained

Credit card companies can offer financial assistance, but there can be drawbacks.
Credit card companies can offer financial assistance, but there can be drawbacks.
alexialex/iStock via Getty Images

A number of financial relief options are available to Americans who have been affected by the unprecedented health situation created by the spread of the coronavirus. Mortgage companies are offering forbearances; insurance companies have lowered premiums for cars that aren’t being driven. Credit card companies have also acknowledged that cardholders may have trouble keeping up with their bills. While many companies are eager to help with debt and interest, there are some things you should know before picking up the phone.

The good news: If you’re unable to make your minimum monthly payment in a given month, major card issuers like Chase, Capital One, and others are willing to grant a forbearance. That means you can skip the minimum due without being hit with a negative strike on your credit report for a missed payment.

A forbearance is no free ride. Interest will still accrue as normal, and the card issuer may consider the missed payment deferred, not waived. If you pay $50 monthly, for example, and are able to skip a May payment, make sure the card won't expect a $100 minimum in June to cover both months. Ask the company to define forbearance so you know what’s expected. Some may be willing to lower your minimum payment instead, which could be a better option for you.

While the skipped payment won’t impact your FICO credit score directly, be aware that it could still have consequences. Because many minimum payments mainly cover interest, your balance won’t remain the same—it will continue to grow. And because that interest is still adding up, your total amount owed is still going up relative to your available credit, which can affect your score.

If you have a sizable amount due, the National Foundation for Credit Counseling (NFCC) recommends looking into alternatives to forbearance, like using savings to pay down some high-interest cards, taking advantage of zero-interest balance transfer offers, or even taking out a personal loan with a lower interest rate.

If you have multiple credit card balances and the prospect of trying to get through to a human to discuss payment options seems daunting, the NFCC is offering their assistance. The agency can put you in touch with a credit counselor who can act on your behalf, obtaining forbearances or other relief from the card companies. Be advised, though, that card issuers may want to get your permission to deal with the counselors directly. The program is free and you can reach the NFCC via their website.

Be mindful that emergency relief is different from a debt management plan, which consolidates debt and can have a negative impact on your credit card accounts.

In many cases, the best thing to do is to pick up the phone and deal with the card issuer directly. Explain your situation and ask about what options they have. Some might waive payments. Others might offer to lower your interest rate. No two card issuers are alike, and it’s in your best interest to take the time to see what’s available.

[h/t lifehacker]