If the FDIC runs out of money, you can expect the US Treasury will make a loan to it to cover depositor's accounts.   You can read this http://abcnews.go.com/Business/story?id=5660122&page=1

Hey Al,

I actually work in the finance industry and can give you some feedback. I can tell you this:

1) avg. time to get your money back is 5-6 weeks, but could be longer. There is an actual claim process, typicaly the reps are overloaded with calls, etc. so expect to be patient.

2) FDIC only covers interest on CD's up until the day the original bank is taken over. So as an example Integrity Bank in Georgia just failed and the branchs will open as regions bank on Tuesday.

3) The process can vary as to how quickly you get your funds back based on the means by which the FDIC takes over the bank and the transition to the new bank.

So in summary, You might want to weigh the difference in interest rate vs. possiblity of bank failure. If the bank fails your original rate of return goes out the window as a percentage of the time you will not be earning interest on your money.

I have been thrust into dealing with about 3 of the 10 bank failures, none of my own doing. IMO thus far the FDIC really has handled things very well. Like I said Indy Mac bank was about 5-6 weeks before most assets were distributed to the FDIC limits. Given the size and number of customers I think that is fanastic work.

BGF

Al, one thing to consider is when you buy a brokered CD over the counter. Many of them are currently offered at a premium to par. Some of these are offered for as much at 103 or 3% greater than face value.

If the bank fails, you only get reimbursed for face value.  Of the ~ 100 OTC CD's I looked at today, about 90% of them were offered above par. Also, about 90% of them were from banks that were unlikely to survive the next year. It appeared that the smart money crowd was trying to sell their CD's for a capital gain before the banks failed.

Caveat emptor. . . 

OY

Thanks again, BGF and OY; your information and advice was very helpful.  Regards, Al. 

I used to buy CD's at the highest interest rate I could find. I no longer do that. I check the Bank rating on www.bankrate.com as well as the safe and sound ratings. I get a little lower rate but some peace of mind.

I noticed in my local newspapers that the banks which are in trouble are advertising the highest interest rates. I know the CD's are insured but I don't want the hassle of trying to get my money if the bank fails.

Jeannette

There are many good comments in the replies.  I really can only add my own experience.   I had a bank that was taken over by the FDIC last September.  About a week before the bank was closed I was planning to withdraw my money.  Boy I'm glad that I didn't.  I I'd likely have a worthless piece of paper.  Instead I used the bill pay option to write a check to my brokerage.  The check was submitted to the bank to be cashed the day the FDIC took it over.  It was processed the very next day by the bank... seamless.   I did not have over the insurance limit.  Those who did likely lost $.

 I have not seen anyone out there insured money for any time... Obove the insurance... yep, they loose.

jim