Raise your hand if you think the FDIC's insurance on your money in the bank is pretty much automatic and not something you need to struggle to understand or worry a whole lot about.

It is almost always there for you. But understanding it is worth the effort, because it's only almost always.

For a whole lot of people right now the FDIC clock is ticking -- and in January some major alarms are set to go off.

When would you be in danger? In the event of your bank's failure or merger.

For example, if you had $100,000 in Bank A and another $100,000 in Bank B, you're safe, with a total of $200,000 in FDIC protection. But if Bank A and Bank B merge, your accounts soon will be merged, too -- and you'll only be entitled to $100,000 in FDIC coverage.

It's the law. Whenever two or more insured depository institutions merge, customer's deposits continue to be separately insured for six months from the date of the merger.

But knowing just how the FDIC insurance works can allow you to move your money around to create maximum protection.

Uncle Sam practices prevention
The Federal Deposit Insurance Corp. was created in 1933 by President Franklin D. Roosevelt to insure bank and thrift deposits after people lost their money in the aftermath of the stock market crash of 1929. Deposits at credit unions are insured by the National Credit Union Administration. The agencies insure accounts up to $100,000.

"The lessons of the Depression prompted the government to act quickly to protect bank customers from disasters beyond their control," says Kathleen Nagle, an FDIC senior consumer affairs specialist.

But a government's work is never done. People were confused about coverage limits on joint accounts -- which seemed to be half of those on individual accounts -- and frequently complained to the FDIC. So in April the FDIC ruled that all cash in a joint account is insured on a per-person basis up to $100,000. If Joe and Jane Account Holder have $200,000 in a joint checking account, the total insurance coverage is $200,000.

To insure any more, the Holders would have to find a new bank for the overflow.

Rules for CDs
The rules for certificates of deposit depend on the maturity and term at the time of the merger:

• CDs assumed by another institution continue to be separately insured until the earliest maturity date after the end of the six-month period.
• CDs that mature during the six-month period and are renewed for the same term and in the same dollar amount (either with or without accrued interest) will continue to be separately insured until the first maturity date after the six-month period.
• CDs that mature during the six-month period and are renewed on any other basis, or that are not renewed and cashed in, will be separately insured only until the end of the six-month period.

Some states require that all institutions that accept deposits carry federal deposit insurance. All federally insured banks and savings and loans must prominently display the FDIC seal.

The agency insures the principal and balance on deposit accounts -- such as checking, savings and money market accounts -- up to $100,000. Certificates of deposit and trust accounts that contain cash rather than securities are also protected.

So if Joe Account Holder had a principal balance of $95,000 in his checking or money market account plus $4,000 in interest, the total amount would be insured by the agency. If Joe's cash including interest exceeded $100,000 and his bank failed, he would only get the maximum insurance coverage: $100,000.

Protecting retirement savings
But what about individual retirement accounts, 401(k), pension and other retirement savings plans? Are they backed by the guarantee of the government? Sort of.

Money housed in these plans is insured separately from money in other deposit accounts. Let's say that at the same bank you have three accounts: a savings or checking account in your name, a joint account and an IRA. Under FDIC rules, each type of account is insured separately from the others -- $100,000 for each account -- for a combined total of $300,000 coverage.

Limits get a bit complex with employer-sponsored 401(k), pension or profit-sharing plans and IRAs that are self-directed; that is, the owner gets to decide which bank or thrift gets the deposit. In a nutshell, Nagle says those with any of these plans should contact the plan administrator, because rules vary.

Who's covered and for how much?

• For individuals: Each bank and thrift customer's deposits are insured up to $100,000. That includes checking, savings, money market accounts, certificates of deposit and individual retirement accounts.
• For couples: All cash in a joint account is insured on a per-person basis up to $100,000. So if Joe and Jane Account Holder have $200,000 in a checking account, the total insurance coverage would be $200,000.
• For couples with children: Couples can set up an in-trust or testamentary trust account for their children for a maximum of $600,000 in insurance coverage. The coverage can also apply to the spouse or parent of the account-holder, a grandchild or sibling.

If parents want to share an account with their children, they should set up an in-trust or testamentary trust account through their bank to receive more FDIC coverage. The special accounts do not provide insurance for the parents, but provide $100,000 in insurance for each child up to a total of $600,000. The accounts can also be used to share with a parent, a grandchild or a sibling -- even a spouse.

Not enough cash on hand
"In reality, the FDIC only has a fraction of the money necessary to cover all insured bank accounts across the country," says Ed Mierzwinski, director of the U.S. Public Interest Research Group, a consumer advocacy group based in Washington, D.C. "Say banks all over the country were to fail, the FDIC simply couldn't reimburse all account-holders."

A General Accounting Office report published in 1990 said the failure of a single major bank or the onset of a recession could wipe out the FDIC's fund, which has only $12 billion or so on hand to cover the $2 trillion in insured deposits in commercial banks. And if the cash were exhausted, the government might provide a bailout with taxpayer money.

The majority of banks are insured but there are a few that get by without having to assure their customers that their money is safe.

The last time insurance claims were paid out was in 1985 in Maryland, when that state's insurance fund doled out $185 million to bank customers after a number of savings and loan institutions went belly up.

Bank customers are not notified when a balance creeps above the federally insured limit, Mierzwinski says. But the FDIC offers the Electronic Deposit Insurance Estimator, which tells customers if their accounts at an FDIC-insured institution are within the $100,000 insurance limit.

If you want to know whether a bank is insured, do a search on the FDIC Web site. If it's not insured, you may want to tread with penny-pinching caution.