I am going to surpass the FDIC limit in my bank this year. Do I need to open up an account at another bank? or, is there a loophole to be able to stay at my current bank? March 30, 2022 by paysite Uncategorized 29
Whats the reason you don’t invest that money instead of keeping it in a bank?
Not a bad problem to have. Consider opening an account somewhere else, maybe taking advantage of perks you don’t have at your current bank, or perhaps some other accounts (brokerage, real estate, etc).
Need to? No. Odds that the bank will go out of business are low. but it adds to your risk.
I strongly suggest looking into an online bank an HYSA for a chunk. It’s not really competitive with inflation, but it’s better than a sharp stick in the eye. I’ve used Discover Bank for years. I see a lot of people recommend Ally bank. And of course, there are others.
Just curious, but why do you have so much cash?
FDIC is per FDIC-insured bank, which means each bank will get you covered
Now, here are your two options:
1. If you want to earn high interest during low Fed interest rate: go with online banks
2. If you want to earn high interest during high Fed interest: open an account with TreasuryDirect, and buy 4-weeks treasury bills (t-bills). Basically you will be lending money to the government and this is considered RISK-FREE. This is what big businesses and high net worth people do. At your stage I won’t trust banks if you want this amount of money liquid. The good thing about t-bills is they credit you the interest when you buy the t-bill. For example, lets say 4-weeks T-bill is going for 1% and you buy 1 t-bill for $100. They will take $99 from your account and leave the $1 (1% interest rate) in your account. For my business, I do treasureydirect and spread out my bills from 4 weeks all the way to two years. Interest rate is updated every 4 weeks and once you buy, your bills is locked into the interest rate that you purchased ( just like bonds).
Do more research on T-bills and see the current interest rate table.
You may want to open a brokerage account and buy Treasury Bills. One year bills currently pay 1.2% and have no risk of default. You’ll get a better return and won’t have to worry about your bank.
You can also do TreasuryDirect; it has a horribly old interface.
When interest rates increase quickly, Treasury Bills usually have rates much higher than CDs or savings accounts. It takes a while for banks to raise their rates.
Look at opening a sweep account at a brokerage to keep your cash. Fidelity is probably the easiest.
Is it a single account or joint? If you have one joint account and one single account at the same institution, they are insured separately. Talk to a financial service rep at your institution. They can advise you on how to structure your accounts so that you can stay with the same place.
To answer your question, yes. With interest rates rising and you wanting to buy a home in two years. Preservation of capital is a focus point – look into CD’s, bond funds, preferred stocks (these have taken a beating lately). Gain some internet while you’re waiting.
If you’re passing the insured limit in a savings account, you’re losing money. Unless 250k is 6 months of expenses for you. If not, just keep 6 months in the bank and start investing the rest.
There is something called a CDAR that automatically distributes a deposit across 20 insured banks up to $5 million. My broker offers a mini-CDAR of $1.25 million in 5 institutions.
Open a shadow account on the main account, you can ask the bank how this works.
It’s a banks work around to this problem.
This will automatically distribute any funds over $250k to the secondary account.
I was in the same situation after selling my condo & I opened a new account with a different bank. I opened a Citigold checking account for the $1500 promotion plus they reimburse $200/year of subscriptions (Costco, Amazon prime etc.). I have enough market exposure with my 401k/IRA so this was a temporary place to park the cash in the short term before buying a new place.
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