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MONEY TALK

S&L Insurance for the Large CD

March 14, 1985|Debra Whitefield

QUESTION: I have a large certificate of deposit at a savings and loan, and I'm curious whether the interest earned on that CD is insured, just as the principal is. Also, in the event of a failure at the S&L, would I be penalized for withdrawing the money before the CD matures? Also, how are insured accounts paid off if the failed S&L doesn't get acquired?--M.E.G.

ANSWER: At S&Ls insured by the Federal Savings & Loan Insurance Corp., depositors' accounts are insured up to a maximum of $100,000, regardless of whether the account contains principal only or principal and interest combined.

So, if you have a $90,000 certificate of deposit that has accrued interest of $5,000, say, all $95,000 would be insured. But if the interest has pushed up the combined amount to $105,000, only $100,000 would be insured.

Holders of CDs, however, often ask that the interest be regularly paid out to them as it accrues rather than having it reinvested. In that case, our hypothetical owner of the $90,000 CD would be fully insured on this account.

Another thing for you to consider is whether you have more than one account in the same name at the S&L where your CD is. If you have a checking account and an ordinary savings account in addition to your CD, for example, and all are in your name alone, the three would be added together for purposes of determining how much is insured. (Separate coverage is provided for such special accounts as individual retirement accounts, retirement plans for self-employed persons and trusts, so to be certain of your insurance protection, you should ask your S&L.)

Canny consumers have found a legal way to restructure their deposits and substantially increase the maximum coverage. Couples, for example, would be covered up to $300,000 if they had a joint account and each had an individual account at the same S&L. Establishing trusts for their children would further increase the maximum coverage.

How your money is handled after an S&L failure depends on whether a buyer is immediately found or whether the S&L is closed.

In most recent failures, the Federal Home Loan Bank Board, which regulates S&Ls, has found a buyer in advance. In such cases, the normal procedure is for the regulators to take over the S&L on a Friday, after the institution has closed for the day. On the following Monday, the S&L reopens as a branch of the buyer. Despite the change in ownership and transfer of assets, it's business as usual for the account holder. Thus, if you were to panic and withdraw your money, and the CD had not yet matured, you would be penalized for early withdrawal.

That is not the case when the S&L fails and there is no buyer. In those cases, the accrual of interest ceases on all accounts at the time the institution is closed. So, recovering your money from regulators, even though the CD has not yet matured, would not trigger a withdrawal penalty.

When there is no buyer, federal agents and liquidators are sent to the S&L as soon as the institution is closed. They handle the paper work, notify each depositor in writing that the bank has failed, instruct them how to get their money and pay insured depositors.

Typically, the main office of the S&L is reopened within five working days so depositors can get checks for insured amounts. Depositors should take along proof of deposit ownership, such as passbooks or statements from the S&L. Those who are unable to appear in person may file claims by mail. (Such correspondence should be addressed to the claim agents in charge of the closed S&L and notarized if the claim is for more than $50.)

If your account balance exceeds $100,000, you will be directed to claim agents. They will give you a check representing the insured part of your deposits and help you file a claim for the uninsured balance. After the S&L's books are settled and its assets sold, these claimants receive pro rata payments.

Q: Does the Internal Revenue Service still pay for turning in someone who is not paying their taxes? And if so, is there a special form to do this?--A.W.

A: Yes, the IRS does reward informants. Last year, for example, the agency paid out a total of $853,698 to 350 such people. In return, the IRS recovered $34 million in taxes that had gone unpaid.

To tell your tale, call or write the IRS and ask for a 211 claim form. Complete it and send it to the address stated on the form. You will collect a reward only if your information leads to an investigation and unpaid taxes subsequently are recovered. The maximum reward is $50,000.

How much you receive depends on how specific your information is, how important that information was to the recovery of unpaid taxes and how much is recovered. The IRS makes those determinations and you have no recourse if you disagree with its decision.

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