Where should I put all this cash?
July 18, 2011 9:42 AM   Subscribe

I currently have significantly more than $250,000 in a single bank savings account, as I am starting a major home renovation project that I need to fund. I will be making periodic payments on the construction, which will take the balance well below $250K before the end of this year. My question is: given that FDIC only covers $250K, and given the debt ceiling issue and the looming 8/2 deadline, and given that most of our elected leaders seem to be incapable of reasonable compromise -- what would be the best option(s) for me in re: this money?

Should I spread out the funds across two bank accounts? Should I look for more interest-generating opportunities? Or am I over-reacting? We're talking about a 5-month window here.
posted by anonymous to Work & Money (12 answers total) 2 users marked this as a favorite
I think you're overreacting, but if it makes you feel better, it is trivial to move some of the money to another bank, so why not go ahead and do that?
posted by kindall at 9:47 AM on July 18, 2011

Do you really need that much cash anyway? A conservative approach would be to put a big chunk of it into a CD at another institution and at least make slightly more in interest than the pennies I imagine a savings account is giving you.
posted by ghharr at 9:48 AM on July 18, 2011

If you're concerned about FDIC insurance and nothing else, then just create a series of 200k accounts in a variety of banks. They'll all be happy to have your business.
posted by eisenkr at 9:50 AM on July 18, 2011

You can't get a decent return on your money currently without taking on a whole lot of risk (thank Ben Bernanke for saving the banks while punishing the savers....). I'd say stay in cash, or very short term CD's (6 months or less).

If you are really concerned about access to the funds to pay the renovation then you might consider opening up account(s) at other bank(s) to ensure that you have access to some cash in case one bank goes under. FDIC insurance takes time to pay out
posted by de void at 9:54 AM on July 18, 2011

I can't tell what your concern is regarding the debt ceiling. If it's that the result will be the FDIC losing funding somehow, I don't think this is something worth worrying about.

Other than that, set up a second bank account... try Ally or ING and you can set up and fund the new account without leaving your house. This will double your FDIC insurance.
posted by deadweightloss at 10:10 AM on July 18, 2011

I don't think you should be worried about a double event: your bank failure AND the government failure. However, I think it's prudent to spread out your stash in multiple banks to guard against a more realistic danger: identity theft / forgery. Do these things:

1. Have the money in the account that has no ATM/web-access, OR

2. Secure your internet link to your account, if you manage your account online. Run your computer in Safe mode; have long password; and keep updated anti-virus/anti-phishing software.
posted by curiousZ at 10:48 AM on July 18, 2011

Financial security is often found in diversification. The simplest first step would be to split the money into accounts at several different accounts. (Say $50,000 at 5 banks).

If you're looking for security with returns, and not too worried about liquidity, move some or all of the money into CDs (certificate of deposit) or federal bonds (domestic and international).
posted by blue_beetle at 11:28 AM on July 18, 2011

Given that FDIC covers $250k, the additional money you have in the single bank savings account should have been moved to another bank already. I would open another savings account since this type of investing you are most comfortable with. Likewise you need the cash soon so higher risk investments isn't a good option for you. I suggest this not because of the present political situation, but because of the limit already in place.

I have my money in several online banks:

ING Direct
FNBO Direct
Emigrant Direct

Transferring money between my credit union account and their accounts has always been easy and relatively fast (within 3 business days).
posted by BuffaloChickenWing at 11:30 AM on July 18, 2011

Just put a contingent beneficiary on the account and it will add another $250k to the FDIC insurance.
posted by eas98 at 12:25 PM on July 18, 2011 [1 favorite]

FDIC insurance takes time to pay out

It really depends on what kind of a bank failure we are talking about. In most situations, the FDIC steps in well before true insolvency occurs, and as a customer you don't notice any change to the bank except the name on the door. When Wamu failed, Chase took over everything so seamlessly that my online access credentials didn't even have to change; my ATM card never stopped working.
posted by nomisxid at 12:42 PM on July 18, 2011

The FDIC is self-financed, so I wouldn't worry about any DC hijinks affecting it. And yes, they step in before you are in danger of needing to file a claim.

But for peace of mind, go ahead and split it up.
posted by gjc at 2:16 PM on July 18, 2011

I think you're not overreacting. Even without reaching the debt limit, so far in 2011, 0.7% of the country's banks have failed, which is nothing to sneeze at. And I certainly think it's reasonable to worry that a US default could cause serious market troubles, sending that number much higher.

On the other hand, even if your bank does fail, there's a good chance the FDIC recovers at least some of the amount over $250k for you. But that's not something I would bet on, given the ease of just opening an account at another bank.
posted by Sxyzzx at 6:45 PM on July 18, 2011

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