FDIC insurance limits only temporary

[tallyho8]

I don't know how many of you realize that the new $250,000 FDIC insurance on your bank accounts is only temporary and will revert back to $100,000 at the end of 2009.

I didn't know it and my banker didn't tell me. With stocks freefalling, I decided to put $250,000 of my retirement fund in a 5 year CD that had a good rate of 5 1/2%. Now I just found out that most of it won't be insured after 1-1-2010. And I can't take the money back out the CD to reinvest somewhere else without paying a huge penalty. Naturally, this is one of the big multi-national superbanks and not a local bank that might admit they failed to tell me their insurance was only temporary and make allowances to help me out. They won't even let me change the account to a two party one which would be insured to $200,000.

I usually keep up with the news fairly well and when they raised the limits to $250,000 I don't remember anyone saying that it was only temporary, but I could have overlooked it in the newspaper. It seems like the banks should be required to tell you this when they issue multi-year CDs.

Now I feel like it would have been safer in the stock market or even if I went to the racetrack with it.

Just wanted to let y'all know in case any of you have a quarter-mil and are thinking about doing the same thing. Suggestions?

 

[ultrarunner]

The banks around here have signs at the teller windows noting the increased insurance is only through 2009.

I agree that the media didn't to a good job of getting the information out.

Just curious, what does the paper work for your CD say?

 

[SnowRidge]

If you look at typical stock and mutual fund offerings, they all have a prominent disclaimer that says they are not insured by the federal government. I would think there should have been a similar disclaimer in your CD's case, which clearly stated that the funds would not be fully insured by the federal government.

I think I would at least consider filing a complaint with the FDIC. I would also try and put some heat under the bank by going to the local media.

 

[tallyho8]

Though this is not the bank that I have the aforementioned account in, this is the typical advertisement about their FDIC insured accounts. Nowhere does it mention that the $250,000 coverage is only temporary.
ING DIRECT USA - Frequently Asked Questions

 

[schmism]

Is only temporary today.

but whos to say they dont re-up the limit in 6 months or a year or tomorrow?

there are a ton of rules that that the gov't put in place with sunsets and they opt to keep them permanent.

on another note.... your retirement account was a mutual fund? I cant imagine loosing 30% of the value of my "invested" retirement account and then deciding to sell them to cash them out and put it in a CD.

Talk about a capital loss. On the upshot with a capital loss that big, you shouldn't have to worry about taxes this year.

So Ill go out on a limb and guess that either
1) you received really really poor investment advice, to the point that the person advising you didnt know that the increase in FDIC insurance is only temporary (which is hard to comprehend)

or

2) you didnt consult anyone in the first place in which case you only have yourself to blame.

 

[toy]

Tallyho8; I knew about that and started to mention it, sorry I didn't. Something that bothered me about it is that I was under the assumption that a fund was set aside ahead of time to cover times of bank failures. If that is the case you know that the money to cover the extra 150000 hasn't been set aside since the economy is in the toilet so , as the banks go under the pay out to each bank would be 2 1/2 times what it would be [I know that would be only for those that had more than the 100,000 previous limit ]. The first banks would soon deplete the money that is set aside and then without printing more money the fdic would be broke. That might not be the case but it was something that concerned me. I had a friend that about eight years ago one of the banks that he used went under because of embezzlement he lost a huge amount of money but he recouped a percentage, but with today's economy I wouldn't bet on much of a recoup if the bank went under now.

 

[Sigarms]

Correct me if I'm wrong, but no matter what amount the bank is insured for, dosen't the bank by law have up to two years to get your money to you if need be?

I only mention this because I'm not sure about the rest of you, but what cash I have in general accounts at the bank, taking up to two years getting me that money if I needed it would hurt.

 

[tallyho8]

on another note.... your retirement account was a mutual fund? I cant imagine loosing 30% of the value of my "invested" retirement account and then deciding to sell them to cash them out and put it in a CD.

Talk about a capital loss. On the upshot with a capital loss that big, you shouldn't have to worry about taxes this year.

So Ill go out on a limb and guess that either
1) you received really really poor investment advice, to the point that the person advising you didnt know that the increase in FDIC insurance is only temporary (which is hard to comprehend)

or

2) you didnt consult anyone in the first place in which case you only have yourself to blame.

No, my retirement fund was not in a mutual fund. I have privately invested my money in different ways over the years, ways that I have some knowledge of, and been fortunant enough to have always profited from these investments. I don't pay others or depend on others to tell me what to do with my money as I feel I have adequate knowledge to handle these matters myself. My personal investment fund has grown 4000% in the last 30 years and I am quite proud of my methods and happy to take the blame.

This last CD is the first time that I have ever felt that I did not research a deal well enough in advance and have money at risk.

If I felt that I would need the money anytime soon I would not have locked it in for 5 years.

 

[JB4310]

No I didn't know about the term limit either, they are so quick to inform us that our money is safe but no mention of for how long. Isn't that a real confidence booster.
If I were you I would make a huge stink, you put that amount of money there to be safe and you locked it in for 5 years now more than 3/5's of your money will not be FDIC insured after the sunset of the higher coverage.

Your not gonna change the policy but maybe could get them to wave any early withdrawal penalties if you decide to remove any of the money after the end of 2009.
JB.

 

[LBrown59]

The Government don't insure these funds to begin with .
The FDIC is a small private insurance co.
They only have enough assets to cover a very small percentage of these funds.
Seems to me it's only something like one half of one percent.
L . B .

 

[jdbower]

FDIC insurance is there to protect the banks, not you. Lets say on the news you hear that MegaBank is having issues with some of their mortgages. Now really they've sold most of their mortgages to third parties so all that's really happening is that they're tightening up their new mortgage authorizations, but that's not good news so people think they're in trouble. People start panicking and pull out their savings to store under their highly flammable mattresses. Now MegaBank really does have issues, they've lost the capital they used to loan out to homeowners and farmers so they start getting into trouble. And thus the prophecy is fulfilled. With FDIC insurance people don't panic as much and they're more willing to leave their money in the bank and ride through questionable times.

Now, let's take a look at your real risk:

1. You're already over the limit, or at least you will be the first interest payment you get. Unless you really meant that you invested enough so that in 60 months you'll have $250,000.

2. There's a strong possibility that the FDIC insurance rates will be extended. The only reason not to is to get people with a lot of cash to invest in something that's higher growth.

3. If not, you've still got a large chunk of your investment covered so you won't be out everything.

4. The only time FDIC insurance comes into play is when a bank goes under. Even with the recent mortgage issues, how many banks have actually filed claims against the FDIC? Especially the big guys? So if the bank goes bust next year you're out your interest. If the bank goes bust sometime in the following four years you're out the interest and possibly $150,000 - unless they extend or even up the current limits.

You're in charge of your own risk. Most of the CD's I've dealt with simply make you give up xx months of interest as a penalty, I don't think closing immediately would cost me anything out of pocket but I've never changed my mind like that so maybe it would. Either way, the majority of your investment is protected for a year and change. If after a year you think the risk is too great, can you live with probably a 2-3% rate of return for the year or is it worth a few thousand of lost interest to gain some security? If the only risk is that the bank will go out of business in a year I wouldn't think twice about it, but then again if I didn't plan to touch the money for 5 years I'd probably dump it into today's depressed market and take my chances that I'd get better than 5%.

 

[SnowRidge]

The Government don't insure these funds to begin with .
The FDIC is a small private insurance co.
They only have enough assets to cover a very small percentage of these funds.
Seems to me it's only something like one half of one percent.
L . B .

FDIC = Federal Deposit Insurance Corporation, a US government entity. The insurance limits are set by Congress. The insurance is backed by the full faith and credit of the US government. Oh well.

And aren't you in Canada?

 

[reb]

This thread raises some questions. Certain retirement accounts in banks have been covered to $250,000 for a couple of years. From what I understand, that limit is not scheduled to drop back down.

FDIC: FDIC Consumer News Special Bulletin (Revised September 2006)

 

[Chuck52]

With the small-potatoes CDs I've invested in you only lose the interest on any incomplete quarter with an early withdrawal. What I've done is split my money into as many smaller chunks as will still meet the minimum in case I need to cash one in early. However, it sounds like the OP may have a problem moving his money in such a way as to avoid a tax penalty, because it is a retirement account. That can get really interesting I would think.

BTW, I use a savings-and-loan for my banking. I know they have FSLIC instead of FDIC, and I think the limits are the same, but does anyone have knowledge about the relative stability of S&Ls vs banks? Perhaps the S&L meltdown several years ago "innoculated" them? I'm confident of mine....no subprimes there. They checked me very thoroughly when I got just a small equity loan for some needed repairs, and they told me my rating was excellent...they still checked me to the point of requiring tax records, pay stubs, etc. I found the pay stub thing amuusning since both my wife and I do direct deposit with them.

Chuck

 

[SnowRidge]

Washington Mutual just collapsed a few days ago. It was the largest thrift (savings and loan) in the country. The Office of Thrift Supervision has been heavily politicized by the current administration and weren't doing their job. I know you are shocked.

The FDIC was named as receiver, and WaMu was sold to JP Morgan. No depositors lost any money. We also got lucky. The FDIC did not have to spend any of our money, either.

 

[riptides]

I have never invested in a CD that did not offer at least one penalty free withdrawl a year.

Why did you not stagger or ladder them?

Interest rates aren't the only reason to invest in CD's.

 

[tallyho8]

I have never invested in a CD that did not offer at least one penalty free withdrawl a year.

Why did you not stagger or ladder them?

Interest rates aren't the only reason to invest in CD's.

I have had CDs for over 35 years and I have never heard of one that would allow you to withdraw your money penalty free before the maturation date except in rare cases such as death of CD owner.

Terms could not be staggered because only 5 year CDs were paying 5 1/2% and this offer was only good for 5 days.

Interest rates are my only reason to put money in CDs.

My penalty for early withdrawal is $25 plus 3% of the withdrawal amount. This is the most I can lose if I decide to withdraw the money at the end of the year for investment elsewhere. This is about $4500. But, as others have stated, I have a year to decide what to do and by then they may extend the $250,000 insurance for a longer period so that I may not have to do anything. I have talked to one of their many vice-presidents and he let me know that they must follow the regulations and that there is no concession that they can make for me. He gave me the impression that if I don't have at least $10,000,000 in the bank that they don't even have the time to talk to me.

The main purpose of this thread was to inform other readers of this TEMPORARY FDIC insurance so that they would not do as I did.

 

[Brokermike]

IRA's carry $250,000 in FDIC insurance. So don't sweat it. You should be happy you've done well in the last 30 years investing on your own. As an investment professional I can tell you that very few people act rationally during times like these, and many make the worst (read: emotional) decisions during Bear markets. I'm optimistic about American ingenuity and am convinced that these tough times won't last forever. My big concern for the next few years is INFLATION, we're pumping lots of money into the economy to get things going again..YIkes

 

[mnbowhunter1960]

tallyho, thanks for the info. 5 1/2% is a great rate! the best I have found around here for awhile is 4.25% for a two year CD and you can add to it one time and raise the rate one time, lets hope the rates go up a bit. MH