Recently there have been a number of different bank failures which have left people with large amounts of money deposited in savings high and dry when the dust settled. The Federal Deposit Insurance Corporation (FDIC) will insure up to $100,000 for any consumer at an individual bank and up to $250,000 for a retirement account. To most of us, we won’t have to worry about exceeding these limits for many years to come, but for others, saving money above the FDIC insurance limit is a major problem. Fortunately, there are options for individuals who would like to keep their money safe well above the $100,000 limit.
NetBank is the quintessential example of why wealthy individuals should take very specific actions to keep their savings FDIC insured. Many consumers though the bank was doing just fine and had a lot of money saved there. It was FDIC insured and people never even considered that their money might not be safe. NetBank hit some hard times and went out of business and a whopping $109 million of their deposits were not FDIC insured and the people who held those deposits were simply out of luck.
In order to keep your initial deposit and the interest you earn FDIC insured, you should never deposit more than $90,000 in any one bank. If you deposited the full $100,000 into a bank and it went out of business, any interest that you earned would be lost. By only depositing $90,000, you are giving yourself some room to earn interest that is still FDIC insured.
To accomplish this task, it’s as easy as opening up several different savings accounts or certificates of deposit at multiple banks. This works fine until you hit the range of several million dollars when keeping all of your money FDIC insured would require opening dozens of different bank accounts. There’s a service which addresses this exact issue. The Certificate of Deposit Account Registry Service (CDARS) will invest your money in certificates of deposit across dozens of different banks and keep the money invested for you. You’ll only have one account to deal with and earn one interest rate. With the CDARS service, you can deposit up to $50 million and still have your money FDIC insured. This is a great option for people with a large amount of money to deposit who want to maintain FDIC insurance on their money.
Never leave more than the FDIC insured limits in any one bank, no matter how financially stable it is. If you’re going to leave a substantial amount of money in savings, make sure it’s diversified across a number of different banks.