Does reaching the FDIC limit matter?

January 11, 2007 5:44 AM

Does being over the FDIC $100,000 for your savings account really mean anything or signal any kind of financial danger?

I have a safe, conservative FDIC insured money-market savings account. It's with a fairly safe, reliable bank (PNC). I just noticed that my balance is approaching the $100,000 FDIC limit. Does this mean anything? Are there realistic scenerios where I might actually lose some of my money? I'm very conservative financially, and I really don't like risks. Should I be worried? If so, is there something I should do?

posted by unreason to work & money (21 comments total)

You could always move the excess to another bank -- the $100,000 limit is per bank.
posted by Rock Steady at 6:00 AM on January 11, 2007

Rock, I could if necessary, but that makes my finances a bit more complicated. I can do it if I have to, but I'm not sure if I have to.
posted by unreason at 6:08 AM on January 11, 2007

Are there realistic scenerios where I might actually lose some of my money?

Well, sure. The stock market could collapse; after all, that's what the FDIC insurance was created (in 1934) to cope with. This is an unrealistic scenario at all and only those times when it's not actually happening. If you're that conservative with money, you may well want to hedge against the possibility.
posted by longtime_lurker at 6:10 AM on January 11, 2007

You might check to see if your bank uses the Certificate of Deposit Account Registry Service (CDARS). Basically, members of the registry spread large acounts around multiple institutions in a way that is seamless to you but spreads the insurance risk around. You could have up to $30 million on deposit, with a single statement and interest rate, but spread wide enough to be fully covered by the FDIC. It is fully legal, and completely vetted and approved by the FDIC.
posted by Lokheed at 6:14 AM on January 11, 2007

My bank tells me you can get another 100,000 FDIC insured by adding a name to the account, if that is an option for you. Otherwise, it's per bank, and it is a hard limt, but you only need it if the bank goes under, so if it's a reputable bank (how could you tell these days?) you shouldn't need it.
posted by unrepentanthippie at 6:16 AM on January 11, 2007

Well, sure. The stock market could collapse; after all, that's what the FDIC insurance was created (in 1934) to cope with. This is an unrealistic scenario at all and only those times when it's not actually happening. If you're that conservative with money, you may well want to hedge against the possibility.

There was also the savings and loan crisis of the '80s, which was triggered by a large number institutions making some very risky investments. Some of the obvious options are:

1: Start looking at your bank's financial records and the kinds of products that your bank is selling.

2: Diversify your investments.
posted by KirkJobSluder at 6:22 AM on January 11, 2007

Some good info, including some discussion of the risk and what to do about it,
here. Turns out, between 1999 and 2001, there were 15 bank failures, and $114 million lost due to being over the limit. So it's not just a stock market crash that can do it.
posted by longtime_lurker at 6:23 AM on January 11, 2007 [1 favorite]

It's a real problem in places like the UK, where you'd recover much, much less. Pretty much anything over £38K or so you'd lose.

I'm with HSBC, would rather not be HSBC, but won't risk some of the second tier institutions solely because I'm reasonably sure a firm like HSBC wouldn't go under....of course you deposit your money and takes your chances...
posted by Mutant at 6:29 AM on January 11, 2007

The stock market could collapse; after all, that's what the FDIC insurance was created (in 1934) to cope with.

To be pedantic, it was created to restore confidence in the banking system. Banks didn't go under simply because of the stock market crash; they went under because they were not required to have enough cash held in reserve to deal with small runs.

If you have 100k+ in a savings account, you may be getting slowly robbed by inflation anyway. Why not put some of the money into bond funds or index funds or something slightly more risky?
posted by yerfatma at 6:29 AM on January 11, 2007

Off topic, but isn't $100,000 rather low? I'm sure in 1934 it was a big deal - why isn't something like this changed to at least match inflation?
posted by thilmony at 6:29 AM on January 11, 2007

It has been. It was raised to $100,000 in 1980.
posted by longtime_lurker at 6:34 AM on January 11, 2007

The limit has been raised over the years. I think they actually got ahead of inflation, which is why it hasn't been raised recently. Although just last year it was raised to $250k for retirement accounts.

1934: $2500
1935: $5000
1950: $10,000
1966: $15,000
1969: $20,000
1974: $40,000
1980: $100,000
posted by smackfu at 6:41 AM on January 11, 2007

I was going to say don't worry about it, but we are entering a period where massive bank failure is a possibility, what with the (possible) end of an historically long period of low interest rates in sight. But PNC... yeah, don't worry about it.
posted by MarkAnd at 7:22 AM on January 11, 2007

According to the Minneapolis Fed's inflation calculator, $2500 in 1934 dollars was $37,630.60 in 2006 dollars.
posted by Chrysostom at 7:30 AM on January 11, 2007

Off topic, but isn't $100,000 rather low?

There's some argument that $100K is too *high*, and that it helped bring on many of the bank failures in the 80s by letting banks make risky investments.

Anyways, although the likelihood of PNC going under is very small, when it's so easy to avoid the possibility of losing any money if it does using any of the methods suggested above, I don't think it makes sense to take the risk.

I also agree that having $100K in a bank may not be the best place for your money, but where the best place is depends upon a lot of information we don't have--your age, total liquid assets, goals, dependents, etc. Still, it might make sense to consider taking on some more risk for greater returns.
posted by blm at 9:06 AM on January 11, 2007

I've always wondered this, myself. It seems like the kind of thing that, were it ever needed (i.e., financial institutions across the country begin to crash), it would be completely useless (i.e., you couldn't go to the bank and withdraw your 100k, no matter what the laws say).
posted by odinsdream at 11:23 AM on January 11, 2007

odinsdream, you will get your money back eventually even if the bank has to close down.
posted by grouse at 12:07 PM on January 11, 2007

The money would come from the FDIC (i.e., the government), not the bank that went under.
posted by Mid at 4:04 PM on January 11, 2007

Unreason -- look at it this way: the chance of PNC bank failing is pretty slim. (When was the last time that a large, reputable bank of PNC's size actually failed in the US? And I don't mean some little S&L.) If it failed, you would be covered up to $100k by the FDIC, so only your money over $100k would be at risk. The way to reduce or avoid that slim risk is to incur the minor hassle of opening a new account at another bank.

You've got a small risk on one hand and a small hassle on the other.
posted by Mid at 4:11 PM on January 11, 2007

Don't forget that big corporations do stupid things sometimes, and that you, as the consumer, would probably be the last to know. There are big, seemingly stable companies (Enron, for one) that don't exist anymore.

Why take the risk when the insurance is essentially free?
posted by david1230 at 4:15 PM on January 11, 2007

Also, the $100K FDIC limit is per account. Another account you open with say your SO/wife/child or parent will bump your limit to $200K
posted by Arthur Dent at 5:46 PM on January 11, 2007