Savers with a long view> can breathe a sigh of relief. As part of the process of reconciling House and Senate versions of financial reform legislation, lawmakers have agreed to permanently raise the limit on FDIC-insured deposits to $250,000.
This agreement doesn t immediately change anything for investors, because the limit had been temporarily raised during the financial crisis. It does remove some uncertainty about what would have happened in 2013, when the limit had been scheduled to revert back to $100,000. An investor who has a ladder of CDs of different maturities, for example, can safely reinvest a longer-term CD that s coming due, knowing the insurance limit will remain where it is now, says Greg McBride, a financial analyst for Bankrate.com.
The move to permanently raise the insurance limit is good for investors peace of mind, especially now, when people are afraid of the stock market, so they may have more liquid assets, says Linda Sherry, a spokeswoman for Consumer Action, a financial literacy advocacy group.
Whatever the limit is, investors should always make sure their deposits are fully covered by FDIC insurance, McBride says. The money you have on deposit at a bank or credit union is the money that s supposed to help you sleep at night, not keep you awake, he says.
Here are three tips for how to make sure your cash is protected now:
Do Your Homework
It s possible to protect a lot more than $250,000. A married couple, for example, can each have deposits up to the limit at the same institution and the couple can also have a joint account worth up to $500,000. Because retirement accounts are counted separately, each spouse could also have an insured IRA worth up to $250,000 apiece. The FDIC doesn t insure against investment loss if your retirement money is invested in equities, of course. But a married couple could easily have more than $1.5 million in fully protected deposits at a single institution, McBride says.
The limit applies to deposits at a single institution, so savers can spread assets among different banks. Credit unions also have an insurance program, the National Credit Union Share Insurance Fund, with essentially the same rules and limits as the FDIC program.
When shopping around for a bank or credit union, don t assume an FDIC logo on a web site is a guarantee of safety, Sherry says. Call the FDIC s hotline at 877-ASK-FDIC or search for the institution in this online database. And watch out for scams an email claiming to be from the FDIC asking for banking information is almost certainly a hoax, Sherry says.
Not all CDs are insured, so be sure to check with the bank before assuming money is protected, Sherry says. For savers with a CD and checking, savings or other accounts at the same bank, all those accounts count towards the individual $250,000 limit.
Savers who want to keep more than $250,000 in CDs without dealing with multiple institutions can consider the Certificate of Deposit Account Registry Service, or CDARS. This program allows savers to sign an agreement with one bank, which will then split a large amount of money into multiple CDs with the same interest rates and maturity dates at different institutions.
In a CDARS arrangement, savers will have an opportunity to review the list of banks where their money will be placed to make sure they re not doubling up at an institution where they already have another account, says Phil Battey, a spokesman for the Promontory InterFinancial Network, which runs the program. If investors withdraw funds early, they ll face different penalties on different portions of their total investment, says Guyna Johnson, a director at Standard & Poor s fund rating program. In case of a bank failure, savers could also face a delay in getting access to their funds, as money will have to be transferred back through the primary bank where the CDARS arrangement was set up.
With interest rates at record lows, investors who don t already have money locked up in long-term CDs should keep their money liquid to take advantage when rates do rise, McBride says. Bankrate.com offers lists of rewards checking accounts that are FDIC insured and offer better interest rates than many CDs, he says.
Insure Your Brokerage Account
Most brokerages will offer investors the option of having the cash in their sweep account be FDIC insured, Sherry says. This won t be the default option, but investors can ask to have this extra layer of protection, she says. Otherwise, cash in sweep accounts is protected by a different insurance program through the Securities Investor Protection Corporation. Investors would likely have to wait longer to get money back through that program, Sherry says.