1. Home
  2. Financial Planning
  3. BASIC saving account advice

BASIC saving account advice

I have a large sum of money in 2 savings accounts from selling a property. The money needs to remain liquid becuase I intend to re-purchase property soon.

One savings account earns 5% and I have around $200k in it

The other savings account earns around 4.7% and has around $100k in it

  1. I understand that FDIC insures only up to 0k per account; what would it take for a large reputable bank to go under and me to need to worry about FDIC insurance?

  1. How much of a difference (more $) would I earn if I put the 0k from the 2nd account into the first account that is earning more (5%) and already has 200k in it? How much more does the compounding effect make? Would you do this?

Thanks for any advice!!!!

Reply to
mick
Loading thread data ...

Answer: Who knows what it would take for a large bank to go under. But with so many banks out there offering money market rates of 5% or over, why take any chances going over the FDIC limit with one bank. When I checked here:

formatting link
I saw 14 banks offering money market rates of 5% or over.

Over the course of a year 100K would earn an extra $300 interest at 5% as compared to 4.7% (100,000*0.00300). I personally wouldn't pile more than 100K at one bank to make this extra interest income, but I would move the $100K from the 4.7% account to one earning 5%+.

Andy

Reply to
Andy

The only reason I would add all the $ to a single account would be to take advantage of the compound effect,

How did you do the calculation to determine how much would be earned at

4.7% vs. 5%?

Thanks!

Andy wrote:

Reply to
mick

What compound effect? If you're talking about compound interest, two accounts of $100,000 each at 5% will give you the same amount as one account of $200,000 at 5%. Google "compound interest" for lots of calculators and explanations.

$100,000 * 0.05 = $5,000. (Interest earned in one year at 5%) $100,000 * 0.047 = $4,700 (Interest earned in one year at 4.7%)

$5,000 - $4,700 = $300 (Difference)

Me, I'd go looking for two more banks that pay 5% or better and move $100,000 into each. For the most part, when a bank fails, the Feds arrange a take over by another bank. Depositors don't lose a thing. But why take a chance? There are lots of banks out there.

-- Doug

Reply to
Douglas Johnson

I was talking about "compound interest." I thought interest would be larger because it is being multiplied by a single larger amount rather than what would happen with 2 separate accounts.

As far as the calculations, I didn't think it was as straightforward as this; I thought other variables had to be considered, which ones I am not exactly sure of.

Thanks for all of the help/advice everyone!!!

Douglas Johns>

Reply to
mick

Hello,

In addition to your insured $100,000, you can put up to $100,000 in a close relative's names (up to as many close relatives as you have) and get the same FDIC insurance. I did it to insure my "excess" money. It is called a Totten Trust and it's optional whether you want to inform your relatives. Ask your bank.

Cheers, BB

Reply to
Barbara Bailey

BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.