Are bank deposits as safe as we presume them to be

There is a raging debate going on in Washington about raising the U.S. debt limit. This has sent shock waves in the financial sector. Hence, it is time to take a look at your deposits and savings accounts, to ensure that the cash that is stashed away is well protected.

In case the lawmakers fail to raise the debt ceiling and if U.S. defaults on the debt, then you may have to eventually worry about your bank deposits and the safety aspect.

Greg McBride, a senior financial analyst, has stated that in case the government defaults, it would drag on for quite a while and financial markets would be in turmoil. The credit markets would seize up and the entire economy will face the backlash.

In case the default drags on for a number of weeks at a stretch, then what will happen to the safety of the deposits you have made? The government is backing insurance on the deposits you make, where the Federal Deposit Insurance Corp charges fees from the banks to insure the deposits, but it states that it is being backed by the credit of the US government.

McBride states that there would be no government backstop. Although the bank failures seemed to have slowed down (61 through July 30^th this year when compared to 108 from January through July 31 last year) a debt default would suggest an economic turmoil and hence, maybe a rise in bank failures. If there is depletion in the FDIC insurance funds, then the entire scenario would become scary.

McBride also added that a drawn-out US debt default was very unlikely and hence the doomsday scenario will have to stay a while before we start worrying about the deposit insurance.

The other concern now seems to be a credit rating agency downgrade of the US government debt. Hence, it is not a worrisome situation for savers. In case there is a downgrade minus the default, bank deposits are more likely to become really safe, especially for the consumers. However, the bad news in that case would be that the present low-interest rates (on deposits) will not improve in the near future.

In case you have a savings as well as checking accounts on your name at a particular bank. Then both accounts would be taken as one, for the purpose of insuring. If the amount crosses $250,000, then it is not insured. However, if you have a joint account then it is counted as separate accounts while insuring.