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Maximize Your FDIC Protection by Diversifying Your Bank Accounts

Many readers of this blog are relatively high net worth individuals, and most high net worth folks need the peace of mind of FDIC protection over their liquid funds.

This discussion is relevant to this blog because it highlights how individuals who have accumulated cash overtime can achieve maximum protection of their wealth.

This may very well not mean anything to you at this point, but it will at some point in the future. If you are a regular reader of my blog, I trust that you are successful in your profession and have the fire under your belly to get more out of life.

Soon this discussion will be very much relevant to you as well, so you might as well get a head start now and learn how to protect your hard earned wealth as you build it in the coming years.

The key question I am trying to address in this blog post is “how much FDIC protection can you have at one bank? Take a quick guess now and let’s compare notes at the end of this discussion.

Most people have heard of the FDIC insurance claim, have seen the logos posted on the doors of banks or on their websites, but do they really know what this means? Basically, the FDIC (Federal Deposit Insurance Commissions) insures certain kinds of deposits made in a bank such as cash in your checking account and certificates of deposits (CD).

As of 2010, the Government raised the FDIC insurance limit from $100,000 to $250,000 at least through 2013. What does this mean for you? Although there is no way to really guarantee losses against any investment, the FDIC protection is the closest to the best assurance we can get over the fact that our monies are safe in the banks.

Relatively speaking, $100,000 is a large sum of money and most households in the USA likely do not have this amount in their accounts and therefore most folks are already adequately covered. The limit was raised during the economic crisis because some of the wealthier individuals and entrepreneurs were running out of “safe” places to park their monies at.

Many of these folks understand that the FDIC protection pertains to a single account in a given bank, and therefore need multiple accounts across multiple banks to stash away cash in excess of $100,000 per account (let’s assume for a minute that the limit is still 100k and not $250k to keep things simple). As an effect, wealthier individuals often have multiple accounts across multiple banks, often also in multiple countries.

What most of these folks do not know however is that it is not necessary to split up all their funds across multiple banks to obtain the maximum FDIC protection coverage. It is true that each account is protected up to $100,000 in deposits, but what they do not know is that each depositor can have an additional $100,000 fully insured by the FDIC in a joint account at the same bank. In addition, depositors are entitled to additional coverage on certain kinds of retirement and trust accounts held by the bank.

Here is a quick example to walk through. A husband and wife bank at the same financial institution. The husband has a $250,000 balance in an IRA account with the bank as well as an individual account with $100,000. He also has a joint account with his wife with $250,000 in it. The wife maintains a CD with the same bank for $150,000. Together, they have $750,000 in total deposits at the same bank, and every penny of it is FDIC insured.

So should you keep all your funds in one bank or diversify across a few? This is a good question to ponder over. One school of thought is to keep all funds at one bank rather than spreading them across several banks to keep life simple. The discussion above accomplishes this exactly.

FDIC protection guarantees your deposits, but it does not guarantee the timeliness within which you will receive your funds if something was to happen to the bank. You may want to look into this further. For that reason, the decision to keep all accounts with one vs. several banks may not be so simple.

If you can afford the headache of tracking and accounting for several accounts with several financial institutions, then go for it by all means. Otherwise, the discussion in this post should help you regardless. Another alternative is offshore bank accounts, but then you will have Foreign Bank Account (FBAR Form) reporting requirements to comply with, not to mention that foreign banks have varying laws on secured or insured deposits.

Readers: Did you know about this method to maximize FDIC Protection? What would you opt to do if you were in this situation?


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