CD Rates, Bank Failures, And FDIC Insurance

When it comes to finding a conservative investment, it often involves a rather boring type of investment vehicle. You may be interested in investing in a savings account for the liquidity purposes or a little bit higher-paying CD for longer-term. In the past this involve much thought. We'd see attractive, CD rates in the paper or online and just go with the best CD rate. It's never involved much thought, but recent bank failures can teach us a valuable lesson here. The lesson being that we should always have adequate FDIC insurance coverage.

In IndyMac bank, which just recently folded can remind us of some very basic investment principles. Fortunately, when investing in a savings account or through a deposit at our local bank. We have the reliance that the Federal Deposit Insurance Corporation (FDIC) will be there for us when needed. This is true, by following the FDIC guidelines we should have nothing to worry about. Unfortunately, in this day and age we need to always proceed with caution, when it comes to any investment type, even CDs.

The first step when you take when looking at a CD type investment is to make sure that the bank will be entrusting is a member of the FDIC. Not all banks are FDIC members. This is critical to your investment safety, as those banks not offering the FDIC protection carry greater risks. The first thing most people do is look for the highest possible CD rates, and then make a decision based on competitiveness of those rates. There is nothing wrong with this technique, just make sure the institution you plan to do business with is a member of the FDIC.

The second thing you'll want to get a is make sure that you don't exceed the FDIC insurance maximum coverage. This is very important, as you will not be protected for anything that exceeds that amount. This important step is ignored all too often in this country. Unfortunately for the many IndyMac bank depositors, they're learning a costly lesson. It's estimated that thousands of IndyMac accounts will not be covered, due to exceeding FDIC insurance limits. Preliminary amounts are in the billion-dollar range. The silver lining here is that hopefully people will learn from these mistakes. We know that from this example, that no bank is safe, regardless of size. Having the proper FDIC insurance coverage is a must.

A standard FDIC insurance coverage is $100,000 per account. The FDIC does not cover anything above this amount. This is her individual, all depository accounts accumulated. This means that if you have a CD, a savings account, and a checking account, they cannot exceed the hundred thousand-dollar mark. So, how do you get around this limited coverage? Well, the most obvious is to establish bank accounts at different institutions. The FDIC insurance rules state that the hundred thousand-dollar per account, per institution. So, it's rather simple to ensure that you're covered, it just takes a little bit of work. If you want to keep it all at the same institution, there are a few ways to adequately do so. You could set up a joint account, if you're married. This would provide up to $200,000, and FDIC insurance. You can set up a living trust, which could provide $100,000 protection for each designated beneficiary. Also, if you have retirement accounts, those actually have a higher limit. The FDIC limit for combined retirement accounts is $250,000.

The important thing to take away from this lesson is not to be lackadaisical when it comes your banking. Make sure you don't exceed the limits. Talk to your banker, he or she might have suggestions to help you achieve full FDIC insurance protection. This is important, as it's impossible to tell who will be the next bank to fail, but you can ensure your protection.