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No Reason To Be Above FDIC Insurance Limits

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If you have more than $100,000, there is no reason to keep it all at one bank.

(There is actually one reason, but it’s not a good one. At most banks, the interest rate on jumbo CDs is a little larger than regular CDs but it requires that you open one with at least $100,000 – but that’s a bad reason.)

Here’s one horror story about a woman who kept more than $100,000 at Silver State Bank, the Nevada bank that recently went into FDIC conservatorship, and lost over $20,000 (~$20 million was uninsured in total).

The unfortunate part about this story is that CNN is playing to the crowd’s emotions (not surprisingly) by playing clips of her talking about her wanting to put her money in her mattress and how unfair it is that companies are being bailed out while she’s being screwed (and that last completely irrelevant bit about McCain’s connection to the bank, play up to election season!). It’s just adding fuel to the fire. Don’t be ridiculous though and don’t be stupid, don’t put your money in a mattress (because if you have fire, we will no doubt see you on a clip on CNN about it).

It’s unfortunate that they lost that money (even more unfortunate that her husband’s identity was stolen, because if it was a joint account then it would’ve had coverage up to $200,000) but those are the rules. Had it been before the FDIC was created, she would’ve lost more than $20k.

Two lessons:

  • Don’t put more than $100,000 in any one bank unless you’re certain FDIC coverage limits will have your back. There’s absolutely no good reason to.
  • Keep up to date on the news about your bank because no bank is immune to this. Prior to the failure, customers withdrew $250 million in the two months before it failed – that’s information you probably want to be aware of.
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7 Responses to “No Reason To Be Above FDIC Insurance Limits”

  1. Stacey says:

    I feel sorry for this woman, but it really isn’t fair to compare her loss of money to the government bailout. It’s now the government’s fault that she didn’t understand the terms of FDIC insurance? They promised to cover the first $100k, and they did that. We all need to be responsible for our own finances, although there are some serious flaws in the public’s financial education.

    My other question – why did she have $120,000 in a (likely low interest) bank account? I feel that there is a serious problem when people store their life savings in a savings account. Even if you’re risk adverse, what about bonds or TIPS?

  2. What if you were lucky enough to have 2 million dollars in savings. Do you think the best bet would be to have 20 different accounts at different banks? Hopefully I will have that problem but for those with big money, I’d be curious how they work it with the limit.

  3. jim says:

    If you were married, your joint account would have $200,000 of coverage – $100k for you and $100k for your spouse. That would mean only 10 banks.

    The rich do have 20 different accounts at twenty different banks but they use intermediary companies to help manage it for them.

  4. TTFK says:

    One solution: https://www.difxs.com/DIF/Home.aspx

    DIF protects all deposits made at participating Massachusetts-chartered banks with no ceiling.

    When DIF was first created in 1934, it was to do the job the FDIC does now. When the FDIC was created, they decided to cover all deposits above the $100,000 limit instead.

  5. Jackson says:

    I wonder what happens to the rich people who use Private Banking options? Do they use some kind of “extra” insurance?

  6. Jim,
    Thanks for the answer. I guess if you have that kind of money in the bank, you can afford to pay fees for that to work.

  7. Whatever would possess you to keep $120,000 in a BANK? Argh.

    Okay, if you’re tooooo scared to put it in a mutual fund (where you indeed might lose 20 grand in a serious market crash), then at least split it up and put it in two banks.

    And yup. If you have a million bucks and you’re the sort of millionaire who doesn’t take any risk at all, you certainly do divvy it up among 10 banks. More than that, as Jim points out: in a bank whatever interest a hundred-grand deposit earns is at risk.

    I have no sympathy. If you’re smart enough to earn and save upwards of a hundred thousand bucks, you’re smart enough to understand the terms that govern the institutions where you keep it. She should just be happy the largest part of her savings were insured; if this were 1929, she’d be out $120,000.


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