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Personal Finance 101
6 Ways to Insure Your DepositsBy Catherine
BillSavings.com Brief:
Watching the news and hearing about the latest failings of banks and financial institutions has everyone scared. You want to make sure deposits and bank accounts are safe and secure. The FDIC is helpful to that end, but only up to a point. Anything above that limit needs additional insurance. There are six ways to keep those deposits secure as well.
Bad financial news is all around these days and many people are scared. They are looking for ways to ensure bank deposits are covered by the Federal Deposit Insurance Corp (FDIC). Keep in mind, the FDIC can only insure so much. Then what? If you go over the $100,000 limit on individual accounts, or the $250,000 limit on certain retirement accounts, you are probably wondering what you can do to protect yourself. Luckily, there are several ways to cover these excess deposits. Depositors without insurance tend to receive an average of 72 cents on the dollar when their bank goes under. Imagine losing more than a quarter of the money you have invested that goes over what the FDIC covers. Keep in mind, it can take years for a bank failure to be settled by the FDIC. Protect yourself These examples mostly involve accounts at community or state-chartered banks. Most financial institutions that are larger have their own excess deposit insurance. Don't just assume you're covered -- always ask. If you aren't protected, look into the following solutions and pick the one that's best for you. Depositors Insurance Fund (DIF) This fund began back in the 1930s when Massachusetts state-chartered savings banks and state-chartered cooperative banks weren't allowed to belong to the FDIC. Over the following years, the state legislature allowed the state-chartered institutions to combine DIF with FDIC insurance. At that point, DIF started insuring excess deposits. Amounts that go above FDIC coverage are guaranteed. You don't have to fill out any forms or file separate titles. And you don't have to live in Massachusetts to take advantage of this either. Certificate of Deposit Account Registry Service (CDARS) If you have CDs and enjoy their safety and convenience features, but are getting close to FDIC limits, you may want to consider the CDARS program. If your bank offers CDARS, you can deposit funds above $100,000 in CDs at other banks in the network. This should ensure that the money is divided among nonrelated banks, but it doesn't hurt for you to double check. If you're wealthy enough, you can insure up to $50 million. The CDARS program has grown in popularity since this summer. IDC Deposits Similar to the CDARS program that divides your excess amounts among CDs at different banks, IDC Deposits divides excess amounts among money market accounts. There are over 250 banks to choose from and they allow people to have FDIC coverage for up to $5 million. This is what's referred to as an MMAX account. Keep in mind, though, that the interest rate might not be as good as placing funds in various institutions on your own. That's why it helps to shop around, unless the convenience of receiving one statement and one Form 1099 for tax records is more of an incentive than a lower interest rate. It's not surprising that IDC Deposits are seeing an increase in business. Six months, even four months ago, investors were not sold because the rates aren't so terrific. However, now there's a trade-off in the convenience and assurance that the money is safe. That counts for a lot nowadays. Wintrust Financial Wintrust Financial is one of many small groups of banks that provide excess coverage. Wintrust in particular is a bank holding company that has fifteen separately chartered banks in the Chicago and Milwaukee region. Wintrust allows clients to insure $1.5 million in CD and money market accounts. This is more than $16 million if you're able to title accounts differently. If you live outside the Chicago and Milwaukee area, you can still apply for an account at one of the banks. Keep in mind, though, that Wintrust is being cautious for many different reasons. They want to be very careful concerning how well they get to know their customer, which is hard to do online, especially with a money market account. They don't have a need for funding as this is a defensive product. And they also don't want to get $1 billion in deposits with nowhere to go with it. Brokerage accounts If you do business with financial institutions like Fidelity or Schwab, you can purchase CDs at different banks from across the country with just the click of a mouse. Not only is one-stop shopping most convenient, you will also often find yields above the national averages. Just make sure you're responsible enough to divide your money among nonrelated banks. FDIC Title accounts separately and the FDIC allows you to insure amounts significantly higher than $100,000. For example, you could have $100,000 covered in an individual account, $100,000 taken care of in a joint account and $250,000 over in a retirement account. Everything would be insured. 10/8/2008
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