Partitioning $260K In A Bank Account To Get Under The $100K FDIC Insurance Limit

In the early 80's, if someone had asked the same question about savings and loan associations, the answer would also have been "very very few." The trick is to plan for unusual and unexpected events that have never happened before.

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Reply to
Don
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From

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1 sec 1 page 15) From 1984-1994, 1,617 banks failed, 9.14% of all banks, containing

8.98% of total bank assets. I call these numbers high enough that I direct clients to not risk having their money above the FDIC limits that may apply to them. The effort to maintain multiple accounts seems too minor compared to the risk of being left with uninsured funds. Joe

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Reply to
joetaxpayer

I strongly agree. My checking account has been at 6 different banks. Same account, same account number, but 6 different banks. Half of the changes were bank failures. The others were acquisitions.

Since I don't keep $100K in checking , it was seamless. One day the sign over the door had one bank name, the next day a different name. But the checks cleared, the deposit flowed through. No sweat.

-- Doug

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Reply to
Douglas Johnson

Agreed. My posts were not meant to imply that people should not ignore this potential risk. My point was to avoid taking on more likely risks while endevouring to avoid the "risk de jour".

If the money is all ready at the bank, and "safe" investments match the clients risk profile, then by all means take the necessary steps to insure the funds. However, in the wake of indymac, there seemed to be multiple posts suggesting that people were flocking to "safe" investements when they otherwise shouldn't be.

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Reply to
kastnna

More than fair enough. In my original response to the poster who started this thread, I emphasized means of keeping the deposits under the FDIC limits. It's easy enough to do that there's really no reason not to. Especially via the easy-to-access brokered CDs.

FWIW, I wasn't cherry-picking. I just didn't go back that far.

Reply to
BreadWithSpam

I agree, but it's not hard to go over the $250,000 insurance limit for IRA's. I guess then that it's better to start funding another IRA when one reaches $200,000, right?

TIA

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Reply to
Augustine

I think it would be extremely hard to go over $250k of CDs in an IRA. CDs are not really the stuff of a long-term retirement portfolio, rather the stuff from which you take income. If I were in jeopardy of exceeding the IRA limit of FDIC insured products, I'd be looking for some other place to put my future.

Elizabeth Richardson

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Reply to
Elizabeth Richardson

Of course, it depends a lot on the risk tolerance and size of the portfolio. But a portfolio with more than $250,000 in CDs is either very very conservative (perhaps, as we've said, dangerously so) -- or it's a very large portfolio (ie. large enough that $250,000 is not such a huge piece of it).

Certainly if someone has that much in a retirement portfolio in CDs, I should hope that he or she is getting some good advice and knows about all the alternatives - and how easy it is to diversify that out, either into other investments or, if FDIC-insured CDs are the way to go, through options like the brokerage CDs.

Given some of the tone of fear that has come into play in the wake of IndyMac, I hope folks will react in a moderate and thoughtful way and not worry too much - but there's still no reason to go above the FDIC limits and perhaps this is an opportunity to take advantage of the headlines as a reminder to get folks to revisit their allocations and make sure that their portfolios make the most sense for their needs.

Reply to
BreadWithSpam

I'm thinking that it's a rare combination of those who have managed to have high enough earnings to accrue that kind of money* in an IRA and a lack of sophistication so all their funds are in cash. To that few percent, I repeat the suggestion that they either A) buy brokered CDs at a couple different banks, B) go to a second brick and mortar bank with half their funds, or C) take a lesson from some regulars here (with a nod to Elizabeth's post on this thread) and learn to invest, not just squirrel away cash.

Not to get too pedantic, you have one IRA, it may be spread across multiple accounts, but it remains one IRA. Joe

*from
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extrapolate that about 25% of baby boomers will have over $250K in retirement accounts. A good chunk of that would be in 401(k) accounts.
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Reply to
joetaxpayer

On Jul 22, 5:39 pm, "Elizabeth Richardson"

In the same vein, how about nearing the SIPC limits?

TIA

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Reply to
Augustine

I wouldn't put my retirement funds in bank or like-institution insured accounts.

Elizabeth Richardson

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Reply to
Elizabeth Richardson

In the same vein, how about nearing the SIPC limits?

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Reply to
Gil Faver

If this is a concern, make sure that your securities are registered in your name and not "street name".

"The statute that created SIPC provides that customers of a failed brokerage firm receive all non-negotiable securities _that are already registered in their name_ ... All other so-called 'street name' securities are distributed on a pro rata basis. At the same time, ... the SIPC ... satisf[ies] the remaining claims of each customer up to a maximum of $500K."

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Obviously don't keep more than $100K in a broker's cash account. (Note that a MMF is not a cash account; MM shares are securities, not brokerage debt.)

Keeping securities registered in your name generally means that (a) you will not be able to buy on margin, and (b) the broker won't provide a dividend reinvestment service (e.g. converting those ETF dividends into virtual partial shares).

Many brokerages carry excess insurance above the SIPC limits, though I don't believe the soundness of that insurance has been tested.

Here's a longer thread (including a Herb Greenberg column) on the same subject:

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Mark Freeland snipped-for-privacy@nyc.rr.com

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Reply to
Mark Freeland

"Gil Faver" > accounts.

Sorry, I was thinking FSLIC. I don't use a brokerage. I don't invest in individual issues. I have mutual funds invested through the mutual fund company, except for some still in a 457, that needs to stay in that account until my husband is over the age of 59.5. I may be wrong, but SIPC insurance doesn't cover loss of the underlying issues anyway.

Elizabeth Richardson

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Reply to
Elizabeth Richardson

Was the 457 created when he was with public employment (city, state, school system, etc.)? And is he still with them?

-HW "Skip" Weldon Columbia, SC

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Reply to
HW "Skip" Weldon

"HW "Skip" Weldon"

Yes, he worked for the local government, but no, we are both retired. Since he is separated from service, these funds are available to us as long as we don't transfer them to an IRA. This money is performing nearly, but not quite, as well as some other money. Actually, I can (and should) transfer a portion of it. I haven't yet done so because I don't feel an urgency and also haven't yet determined how much to leave behind.

Elizabeth Richardson

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Reply to
Elizabeth Richardson

Another thing - I don't believe Public 457s are subject to premature distribution penalties. Distribution is subject to separation of service, and the funds themselves may involve surrender fees, but there is no age 59.5 rule for 457s. If wrong, am fairly certain someone will correct me.

-HW "Skip" Weldon Columbia, SC

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Reply to
HW "Skip" Weldon

On separation of service our State's 457 is rollable to an IRA. Is there something in your plan document or funds that prevent you doing so?

-HW "Skip" Weldon Columbia, SC

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Reply to
HW "Skip" Weldon

The rollover kills the "NO early distribution penalty" benefit of the

457. I'm betting that's why she hasn't moved the money.

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Reply to
kastnna

Skip, you are correct about the no early distribution penalty. That's why I want to leave the money in the 457 until he turns 59.5. If I rollover, there will be a penalty for early withdrawal. He gets a pension, I'll start SS pretty soon, but we still need to supplement, and that money has to come from somewhere! ;)

Elizabeth Richardson

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Reply to
Elizabeth Richardson

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