How to split money to stay FDIC insured

[Carol1862]

Most of our retirement money is in traditional IRA. Our AA is 40/60. Predominantly in FXAIX (Fidelity Index 500) as well as Vanguard VTTVX (2025 retirement fund) and some in Vanguards Municipal Bonds. The cash is in CD’s. As we all know the rates are non existent. As things are coming due we’re scrambling to figure out what to do.

We use Ally, TIAA and NFCU. Our question is do you split the money so you never exceed the $250k that is federally insured? This money, with a small exception was my husband’s 401k money so it can’t be in my name and split in these institutions. My own 401k money which was significantly less is in NFCU.

We keep 2 years of bills in a MM account. Thank you

 

[njhowie]

1. Do not scramble. Since rates are so low, you are not really sacrificing anything by taking your time in deciding on the best approach for you.

2. You should always be aware of how much you have at any one bank/institution and always stay below the $250k cap per depositor per institution. We have no idea what may happen with any institution going forward. Going over the $250k cap puts the money at risk when there is no good reason to. That being the case, you should pick a number moderately lower than $250k so any interest which gets deposited or other money you may happen to have there doesn't put you over the $250k.

3. The $250k cap is per depositor per institution. If you must, split the money across multiple institutions. An easy way to go about doing this is to roll the money over to a brokerage and you'll have many CDs to choose from at many institutions with just the click of a button. You could easily have tens of millions of dollars in CDs in a single brokerage account spread across many institutions staying below the $250k cap at each. However, whereas when you do it on your own, you are able to find CD specials here and there, with the brokered CDs, the rates are generally in a narrow range - you won't see any "higher than average" yield specials.

 

[pb4uski]

It's a little more complicated than per depositor per institution because taxable accounts and retirement accounts are treated differently, as are joint accounts ... so a single could have $250k of taxable and $250k in an IRA in one institution and still be fully covered.

A married couple could have as much as $1.5m in a single institution and still be fully insured: $250k me, $250k her, $500k joint, $250k me retirement, $250k her retirement

See https://www.mycreditunion.gov/insurance-estimator

 

[njhowie]

It's a little more complicated than per depositor per institution because taxable accounts and retirement accounts are treated differently, as are joint accounts ... so a single could have $250k of taxable and $250k in an IRA in one institution and still be fully covered.

A married couple could have as much as $1.5m in a single institution and still be fully insured: $250k me, $250k her, $500k joint, $250k me retirement, $250k her retirement

See https://www.mycreditunion.gov/insurance-estimator

In the case being discussed here, in deciding how to handle DH's 401k (rollover) money, it's not complicated at all - one (presumed) IRA up to $250k for DH per institution.

 

[Car-Guy]

I made it simple for me (somewhat) and quit worrying about "account" types at any one bank. I just split it up and opened accounts (IRA's) at more and more banks keeping each account under 250k. If I put 225k in a bank today, it will be a long time before it's creeps up to 250k+ at current rates.

 

[pb4uski]

In the case being discussed here, in deciding how to handle DH's 401k (rollover) money, it's not complicated at all - one (presumed) IRA up to $250k for DH per institution.

Yes, you are right that in this case is solely retirement account money for a single individual then it is per depositor per institution.

 

[calmloki]

We are using beneficiaries to bump up our insured CD amounts - but don't think that helps on IRA accounts.

 

[Texas Proud]

I just do not keep anywhere near that amount of money at a bank...


I would rather have it invested so it is in Vanguard or Fidelity or still at my old mega...


You can get better rates at these places if you invest, not worried about any going out of business.

 

[pb4uski]

^^^ True... I feel like a fool for loading up on those 3.5% and 3.0% 5-year credit union special CDs in 2019.

Full faith and credit 3.5% and 3.0% for 5 years with no interest rate risk... what was I thinking?

 

[Carol1862]

Since we are already 40/60 we don’t want any more in the market. You’ve reassured me that having several banks is ok. We do prefer to keep it all at either Fidelity or Vanguard but their brokered CDs are virtually non existent.

 

[gerntz]

Surely the muni bonds aren't inside the IRA, right?

 

[audreyh1]

I just do not keep anywhere near that amount of money at a bank...


I would rather have it invested so it is in Vanguard or Fidelity or still at my old mega...


You can get better rates at these places if you invest, not worried about any going out of business.

Huh? Right now Vanguard and Fidelity MM funds are paying like 0.02% interest or lower. You can find FDIC bank high yield savings accounts paying 0.5%, 0.6% or some a bit higher. Short term CDs are also paying around that or a bit more.

In this situation I have much more cash at banks than in brokerage.

 

[Carol1862]

Surely the muni bonds aren't inside the IRA, right?

No they’re not!

 

[Texas Proud]

Huh? Right now Vanguard and Fidelity MM funds are paying like 0.02% interest or lower. You can find FDIC bank high yield savings accounts paying 0.5%, 0.6% or some a bit higher. Short term CDs are also paying around that or a bit more.

In this situation I have much more cash at banks than in brokerage.

Who said I had it in MM accounts? I have it invested in ST funds. A very small risk, but not enough to go to MM.


Heck, the Vanguard ST fund returned over 5% for the year.... yield is now .82% though...

 

[audreyh1]

If you mean VFSTX, Short-term Investment-grade (corporate) bond funds are not a substitute for cash/CDs in FDIC insured accounts.

 

[ncbill]

There are services that chop up and distribute CD or money market funds through other member banks/credit unions so at each you end up below the insurance limit, but only have one account at your participating institution.

E.g.: https://www.cdars.com

 

[smihaila]

There are services that chop up and distribute CD or money market funds through other member banks/credit unions so at each you end up below the insurance limit, but only have one account at your participating institution.

E.g.: https://www.cdars.com

Thanks for sharing such great tip! Is there any catch / risk that we should be aware of with CDARS?

 

[ncbill]

Thanks for sharing such great tip! Is there any catch / risk that we should be aware of with CDARS?

Rates are probably going to be lower on both CDs & money market accounts versus cherry-picking among individual banks/credit unions.

Personally I'd never use one of those services because of that.

 

[ExFlyBoy5]

This subject comes up on occasion and I am curious as to how many people have lost money because of a failed institute and having a balance OVER the FDIC limits? I assume that it's a fairly low number.

I also noticed that w/ my last legal contract gig (involved large loans for mid-sized companies) many of the company's personal guarantors often had NWs that exceeded $10MM and almost without fail, the lender's package would have a note about deposits that were over the FDIC limits, but the lenders didn't seem to really care.

 

[Texas Proud]

If you mean VFSTX, Short-term Investment-grade (corporate) bond funds are not a substitute for cash/CDs in FDIC insured accounts.

I have that plus an ultra short...



And yes they are... at least IMO... if you are parking cash that is not going to be used for awhile... the chance of having a small decrease in value is worth the extra return... if someone has 2 to 5 years of cash sitting around they can take a small risk for better returns...


Now, getting 3% on a CD is well worth investing in... but what I see today is not..

 

[Texas Proud]

There are services that chop up and distribute CD or money market funds through other member banks/credit unions so at each you end up below the insurance limit, but only have one account at your participating institution.

E.g.: https://www.cdars.com

Thanks for sharing such great tip! Is there any catch / risk that we should be aware of with CDARS?

I used this when I was CFO of a small company.... it works very well and your bank does all the work...


You can tell them which banks they need to exclude if you have money in it yourself as there are plenty of banks in the program...