Category Archives: FDIC insured

Investing in CD’s

Posted on April 3, 2012 by admin

Many people looking for a safe place for their money choose to buy certificates of deposit from FDIC-insured banks.   Similar to a savings or money market account, CD’s ( certificates of deposit ) are FDIC insured.  They are most often purchased through the bank, and do not require any special analysis.  They are an agreement between the individual and the bank to allow the bank to hold the money for a certain amount of time.  In exchange for making the money inaccessible for the agreed upon term, the bank will provide an interest rate that is a little better than the current savings rate.  The longer the term, the higher the interest rate will be. CD rates vary with the market and by length.  When interest rates are high, CD rates will be high.  In times when the Fed is keeping the rates low, one can expect that the rates on their CD’s will not be very high.  As soon as a person buys the CD, the rate will stay the same for the duration of the agreed upon term.  So getting locked into a long term CD when rates are suppressed may not be in the individual’s best interest.  Click here to find CD rates in your area . Because CD’s only offer rates that are slightly higher than those of a regular savings or money market account, they are considered to be a conservative investment.  Higher rates require the investor to lock their money up for more time.  While the money can be withdrawn early; each bank has different rules as to what the penalty is for early withdrawal.  Many require that the depositor forfeit the last two years worth of interest made on the CD.  Any individual that is looking for a safe place to put money, should carefully consider the pros and cons of investing in CD’s. CD’s are a great place to store money, for the right person.  They will get a better return than a savings account, and if the money is not needed, and will not be needed, then a person could do well by using them.  But they are not for everyone, and they should definitely not be used as an emergency fund due to the penalty for early withdrawal.  For those approaching retirement they can be used properly to provide a safe place that earns interest. Continue reading →

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Are You Investing for the Long Term?

Posted on March 16, 2012 by admin

Investing for the long term in a way that meets your risk tolerance is essential to meeting future financial needs.  Unless you choose to invest US Treasury bonds or keep your money in your FDIC insured checking account, investments carry some risk to them.  While a savings is often FDIC insured and guaranteed not to lose value, an investment is only insured against fraud on the part of the broker.  The trade off is the potential for better returns than what a savings account can offer. When a person puts money into a savings account, they are giving it to the bank for safe-keeping.  The bank gives them a rate of return in exchange, but then takes the money they have received and lends its to businesses and individuals in the community or it invests it in treasury bonds other government securities.  Typically, funds deposited in savings accounts at FDIC-insured banks have no risk and are highly liquid. The risk of losing value is what makes the investment pay more than the savings account.  The riskier the investment, the higher the potential returns.  For example, government issued bonds are the safest place a person can invest their money.  Unless the government collapses completely, there is very little risk that the government will not make the promised interest payments or repay the borrowed amount in full at maturity.  Because of their low risk, US government bonds pay a relatively low interest rate.  On the other end of the spectrum there are individual issues of stock in a new startup company.  The shares may become worthless if the company fails.  However, If the company takes off, the share price could appreciate dramatically. You should assess your risk tolerance (this can be done with one of many online quizzes , or with the help of an advisor).  The more aggressive the score, the more stocks (equities) a person will want in their portfolio.  The more conservative, the more bonds (fixed income) they will want.  These investments can come in many different forms. Stocks and bonds are the underlying part of almost all investments.  But many people choose not to invest directly in them.  If a person were to buy one stock, and the company failed, they would lose all of what they had invested.  Instead most people put their money in mutual funds .  Each mutual fund is comprised of many different individual issues.  And any issue often does not make up more than 1% of the fund.  So if one company fails completely, the value of the mutual fund does not drop significantly.  Mutual funds come in a wide variety of investment mixes, from 100% stock based to 100% US government bond based.  Different fund families have different expenses, so be careful when choosing which one to use. Investing for long term goals does not have to be difficult.  Automating the deposits into an investment account is just as easy as automating them into a savings account.  With the value of compound interest, dividends, and capital gains, small systematic investments over time can grow to be of significant value.  Just be sure to use established proven investments, and use the services of a trusted advisor to answer the hard questions. Continue reading →

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FDIC Insurance: Insuring More than $250,000 at a Single Bank

Posted on December 2, 2011 by admin

The recent stock market volatility has prompted many individuals to move their savings to safe and stable FDIC guaranteed bank accounts.  The FDIC guarantee means that even if a bank fails and is seized by its regulators, the individual depositor will be repaid in full up to $250,000 by the FDIC.  Since the beginning of 2008 over 400 banks have failed , so more than ever people want to know the money in their bank accounts is insured.  As some people liquidate their investments in the stock market, they may want to deposit more than the FDIC insured limit of $250,000 in their local bank.  If their bank fails, they could lose any deposits over $250,000.  Fortunately, depositors have several options to insure deposits of more than $250,000 at a single bank to ensure their money is still protected. Different Account Categories FDIC covers up to $250,000 per depositor, per category, per bank . This distinction means an individual account, an IRA, and a trust account would all be protected up to the full amount.  While the IRS limits deposits into an IRA and trust accounts often require fees, those depositors who are worried about keeping all their money at the same bank do have the option to open different types of accounts.  The depositor must be aware, though, FDIC insurance does not cover losses due to stock market performance. Three Accounts for Married Couples A depositor can get $250,000 in coverage per account .  Individual accounts can have a cumulative coverage of up to $250,000 at each bank where money is deposited.  For married couples the limit is reasonably tripled to $750,000 (two individual and one joint account). Different Banks For those who can take the time, depositors can open a new account at different banks and fund those accounts up to the limit.  Depositors will receive multiple statements, and deal with multiple institutions.  It is an option, but perhaps more trouble than it is worth.  It should be noted that a different branch of the same bank does not count as a different bank. CDAR’s For depositors who have exhausted the various categories, they do have another option called CDARs or the Certificate of Account Registry Service .  CDARs allow a person to put money into CD’s at any single, specific bank.  The bank, or a service hired by the bank, then opens CD accounts at different institutions.  For every $250,000 over the insured limit the person deposits, the bank will open a new CD at a different institution.  Using CDARs, the depositor will have all the protection FDIC offers and they will have the convenience of keeping their money at a single bank.  In exchange for the convenience of working only with one bank, the depositor will likely earn a lower interest rate. Having more money than the FDIC insurance limit of $250,000 at any one bank is a good problem.  There are many ways to keep their money all at one bank and still have it protected.  Regardless of which method you choose, always check with your personal banker to confirm that all of your deposits are covered by FDIC insurance. Continue reading →

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