I mentioned yesterday that NetBank melted down and was taken over by ING Direct. Most customers will have a seamless transition, but not everyone.
Applied Cognetics, a small business, held about $1 million in deposits at NetBank. They won’t be able to access that money for quite some time — if they ever get paid back. Why in the world would anyone keep more than $100,000 in a bank account? The FDIC insures only up to $100,000 per customer (plus another $100,000 if they hold a joint account). That means that if the bank dissolves, customers will still be able to get to their money.
NetBank will owe this money to Applied Cognetics, and any depositor whose accounts were valued higher than $100,000. According to the FDIC press release, customers who have deposited more than the insured amount will receive an immediate payment of half of the uninsured balance. Applied Cognetics might receive the rest of the money eventually, but chances are they won’t be able to access it when they need it.
These are the chances you play with when you deposit more than $100,000 into a bank account. Knowing this, why did Appied Cognetics make this decision?
When Colthrust [president of Applied Cognetics] had approached traditional brick-and-mortar banks to open a commercial account, he found them unhelpful and the paperwork daunting. He never imagined losing access to his money.
Paperwork is a hassle, sure. The chances of a bank declaring bankruptcy are usually low. However, Applied Cognetics could have made better decisions about their money management. If you have lots of cash lying around, diversify across banks so you don’t exceed FDIC limits.
Could They Lose $900k? [Fortune Small Business Magazine]