Personal Finance: How safe is your cash?

3/25/2009 - By Staff Writer

If you find yourself concerned about the safety of your bank deposits, you’re not alone. A recent article in the Wall Street Journal noted that bank officials have been receiving more calls from savers wondering just how safe their funds are. Those concerns are understandable considering the meltdown in financial markets and the economic problems facing everyone.

Historically, the Federal Deposit Insurance Corp. (FDIC) guaranteed bank deposits up to $100,000 per person, per institution. The Emergency Economic Stabilization Act of 2008 temporarily increased the limit on deposit insurance for all account ownership categories from $100,000 to $250,000. The increase in insurance limits is effective from October 3, 2008 to December 31, 2009 and unless the changes are made permanent, the deposit insurance limits will revert to $100,000 after December 31, 2009.
If you and your family have $250,000 or less in all of your deposit accounts at the same insured bank, your deposits are fully insured. However, even with the increase in insured limits many people find that they have cash balances that exceed the FDIC limit. Although cumbersome, one often used solution to this problem is to spread cash among different institutions. Some more efficient strategies for getting the most out of FDIC insurance include using joint accounts, brokered CDs, deposit placement services and payable-on-death (POD) accounts.

Deposit accounts held in different ownership categories may qualify for more than $250,000 in coverage. For example, deposit accounts owned by two or more people (joint accounts) are insured up to $250,000 for each account holder listed. Each co-owner’s share of the account is added together providing up to $500,000 in coverage. Brokered CDs can be purchased through a brokerage firm and allow the buyer to purchase multiple CDs from different institutions. If you have excess cash in a brokerage account, brokered CDs are an efficient way of spreading out your cash and obtaining FDIC protection on each purchase.

Certificate of Deposit Account Registry Service (CDARS) is a deposit placement service that allocates funds into different CDs providing access of up to $50 million in FDIC protection on CD investments. You will need to check with your financial institution to see if they are a network member. POD accounts can allow users to increase insurance limits by adding beneficiaries to those accounts. Only certain persons or groups can qualify as beneficiaries though and POD accounts may conflict with a will or estate plan. So you should consult with your tax professional or attorney when setting up this type of account.

In addition to the FDIC protection noted above, on October 14, 2008 the FDIC announced its Transaction Account Guarantee Program. This program provides full coverage (on a temporary basis) for non-interest bearing transaction deposit accounts at FDIC insured institutions that agree to participate in the program. The transaction account guarantee applies to all personal and business checking deposit accounts that do not earn interest at participating institutions. This program is temporary and will remain in effect for participating institutions until December 31, 2009. You should contact your financial institution and inquire regarding their participation in this program. Source: FDIC

Calculating deposit insurance can be complex, particularly when you have multiple accounts or multiple ownerships. For more information visit:

http://www.fdic.gov/deposit/deposits/insuringdeposits/index.html

George M. Peaden, Jr., is a financial advisor with Saltmarsh Financial Advisors, LLC. He can be reached at 1-800-477-7458.