How Important is FDIC Insurance

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Alana888
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How Important is FDIC Insurance

Post by Alana888 » Thu Nov 29, 2018 1:16 pm

I just opened a 3 year CD account for a non profit I manage at TIAA Bank and at the time did not realize that TIAA is now the same as Everbank where we already have a CD that has 2 years to maturity. Between the 2 CD's we have about $370,000, which is $120,000 above the FDIC insured limit. It was not my intention to put this money into an account that wasn't FDIC insured and if I had realized TIAA was the same as Everbank, I would have opened the CD elsewhere, but now that it is done here are my options.

1- TIAA is giving me until tomorrow to close the new CD without penalty.
I can transfer it into a CDARS account. The interest rate would be lower and we would lose about $3000 over the next 3 year due to the lower rate.

2- I can get the money back and find a new CD somewhere else, but the logistics of that are very challenging as I am traveling for the next 3 months and as the only signer, I might not be able to make that happen for a few months in which case the money would be in a savings account.

3- I can leave it as it is with 2 CD's totally $120,000 above the FDIC limit and hope the TIAA stays solvent for the next 2 years and we don't need the FDIC insurance. How big a risk is this? Do banks like this go under frequently? Does anyone keep more than the FDIC limit in a single bank and feel comfortable with that? This would be the easiest option but I don't want to be stupid if it is a significant risk

Any input is appreciated. After tomorrow the option to cash out the CD is gone, so I will have to make a decision quickly

Thank you

123
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Re: How Important is FDIC Insurance

Post by 123 » Thu Nov 29, 2018 1:24 pm

I would take the money out and put it elsewhere where it is insured. I don't think you would be executing your duties with the level of responsibility expected if you established uninsured deposits.

Your organization may want to consider a brokerage account where you can easily acquire brokered CDs as a long term solution.

Edited to add:
If time is short you may want to consider buying a Treasury Bill at auction through your bank. Buying it through the bank is distinct from buying it in a brokerage account connected with a subsidiary or affiliate of the bank. Some banks used to charge a fee for buying a treasury bill, I don't know if they still do. Normally you have to have cleared "good funds" to buy a treasury bill through the bank. Some are auctioned every week, you can bid/buy as a non-competitive buyer, it very easy.

Leaving funds in an insured no-interest checking account is a more responsible action than in an uninsured CD.
Last edited by 123 on Thu Nov 29, 2018 1:32 pm, edited 2 times in total.
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prudent
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Re: How Important is FDIC Insurance

Post by prudent » Thu Nov 29, 2018 1:24 pm

Use the calculator here: https://www5.fdic.gov/edie/ . You might find because of the way your CDs are titled, everything is covered by FDIC insurance.

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Alana888
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Re: How Important is FDIC Insurance

Post by Alana888 » Thu Nov 29, 2018 1:35 pm

prudent wrote:
Thu Nov 29, 2018 1:24 pm
Use the calculator here: https://www5.fdic.gov/edie/ . You might find because of the way your CDs are titled, everything is covered by FDIC insurance.
Thank you for the respnse
My understanding that I don't have options on how to title the account. Unlike a personal account, it has to be in the name of the business..I have confirmed that $120,000 would be uninsured

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Re: How Important is FDIC Insurance

Post by fsrph » Thu Nov 29, 2018 1:38 pm

If you are truly over the FDIC limits I would not leave the extra money there. Did you look on https://www.depositaccounts.com/blog/ for CD alternatives?

I quickly checked some of TIAA's CD rates and they are decent. But, unless you qualify for a special rate there are many other equal, if not better, options here. https://www.depositaccounts.com/blog/cd-rates-survey/

Francis
Last edited by fsrph on Thu Nov 29, 2018 1:46 pm, edited 1 time in total.
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Topic Author
Alana888
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Re: How Important is FDIC Insurance

Post by Alana888 » Thu Nov 29, 2018 1:45 pm

fsrph wrote:
Thu Nov 29, 2018 1:38 pm
Did you look on https://www.depositaccounts.com/blog/ for CD alternatives?

Francis
The rates for business CD's are different than for personal CD's Many banks don't offer business CD's and many don't list the rates for business CD's on their website, so I am having to call each bank individually to find the business CD rate

fsrph
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Re: How Important is FDIC Insurance

Post by fsrph » Thu Nov 29, 2018 2:04 pm

Alana888 wrote:
Thu Nov 29, 2018 1:45 pm
fsrph wrote:
Thu Nov 29, 2018 1:38 pm
Did you look on https://www.depositaccounts.com/blog/ for CD alternatives?

Francis
The rates for business CD's are different than for personal CD's Many banks don't offer business CD's and many don't list the rates for business CD's on their website, so I am having to call each bank individually to find the business CD rate
If this page is accurate, https://www.tiaabank.com/business/accounts/cd , the business CD rates at TIAA do not appear to be better than what you can find elsewhere. https://www.depositaccounts.com/blog/cd-rates-survey/

Francis
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celia
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Re: How Important is FDIC Insurance

Post by celia » Thu Nov 29, 2018 2:23 pm

Alana888 wrote:
Thu Nov 29, 2018 1:16 pm
I just opened a 3 year CD account for a non profit I manage at TIAA Bank and at the time did not realize that TIAA is now the same as Everbank where we already have a CD that has 2 years to maturity. Between the 2 CD's we have about $370,000, which is $120,000 above the FDIC insured limit.
Who is this "we"? If it is you (or your family), there is no problem as you are separate tax entities. If it is the nonprofit, there is a problem.

If you feel pressured because of going out of town, why not change the term of the new CD to be 90 days and figure out what you want to do when you get back. Or put the money back when it came from.

You might also consider putting the money in a money market account at a brokerage (instead of a bank MM) if the best bank rates you can find are under 2%. Non-profits aren't eligible for every kind of Money Market account, but there are some that are yielding over 2%. You would then be free to withdraw the money at any time, besides getting a better than usual bank rate.

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celia
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Re: How Important is FDIC Insurance

Post by celia » Thu Nov 29, 2018 2:27 pm

Alana888 wrote:
Thu Nov 29, 2018 1:16 pm
3- I can leave it as it is with 2 CD's totally $120,000 above the FDIC limit and hope the TIAA stays solvent for the next 2 years and we don't need the FDIC insurance. How big a risk is this? Do banks like this go under frequently? Does anyone keep more than the FDIC limit in a single bank and feel comfortable with that? This would be the easiest option but I don't want to be stupid if it is a significant risk
I don't think this is really an option as you have a fiduciary responsibility to the organization to be prudent. Are there others in the organization who could handle this with similar responsibilities to what you have? For example, if you were unavailable, who is next in line? How are these accounts tracked by the organization, should something happen to you?

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dm200
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Re: How Important is FDIC Insurance

Post by dm200 » Thu Nov 29, 2018 3:01 pm

Alana888 wrote:
Thu Nov 29, 2018 1:16 pm
I just opened a 3 year CD account for a non profit I manage at TIAA Bank and at the time did not realize that TIAA is now the same as Everbank where we already have a CD that has 2 years to maturity. Between the 2 CD's we have about $370,000, which is $120,000 above the FDIC insured limit. It was not my intention to put this money into an account that wasn't FDIC insured and if I had realized TIAA was the same as Everbank, I would have opened the CD elsewhere, but now that it is done here are my options.
1- TIAA is giving me until tomorrow to close the new CD without penalty.
I can transfer it into a CDARS account. The interest rate would be lower and we would lose about $3000 over the next 3 year due to the lower rate.
2- I can get the money back and find a new CD somewhere else, but the logistics of that are very challenging as I am traveling for the next 3 months and as the only signer, I might not be able to make that happen for a few months in which case the money would be in a savings account.
3- I can leave it as it is with 2 CD's totally $120,000 above the FDIC limit and hope the TIAA stays solvent for the next 2 years and we don't need the FDIC insurance. How big a risk is this? Do banks like this go under frequently? Does anyone keep more than the FDIC limit in a single bank and feel comfortable with that? This would be the easiest option but I don't want to be stupid if it is a significant risk
Any input is appreciated. After tomorrow the option to cash out the CD is gone, so I will have to make a decision quickly
Thank you
While the risks are very low, they are not zero. If you want (or must have) zero risk - then move the money.

megabad
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Re: How Important is FDIC Insurance

Post by megabad » Thu Nov 29, 2018 3:59 pm

I vote kick the can down the road. Go with a 1 yr CDARS. Same rate as 2 year and then you get to bump to a higher rate when the first year is up. You could end up with as much or more in interest compared to your 2 yr CD.

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Re: How Important is FDIC Insurance

Post by Chicago60 » Thu Nov 29, 2018 4:06 pm

celia wrote:
Thu Nov 29, 2018 2:27 pm
Alana888 wrote:
Thu Nov 29, 2018 1:16 pm
3- I can leave it as it is with 2 CD's totally $120,000 above the FDIC limit and hope the TIAA stays solvent for the next 2 years and we don't need the FDIC insurance. How big a risk is this? Do banks like this go under frequently? Does anyone keep more than the FDIC limit in a single bank and feel comfortable with that? This would be the easiest option but I don't want to be stupid if it is a significant risk
I don't think this is really an option as you have a fiduciary responsibility to the organization to be prudent. Are there others in the organization who could handle this with similar responsibilities to what you have? For example, if you were unavailable, who is next in line? How are these accounts tracked by the organization, should something happen to you?
Celia's answer is correct. If you want to be stupid with your own money, despite the very minimal risk, go ahead. But, you are a fiduciary and are not entitled to be stupid with other people's money, even if the risk is not significant.

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Alana888
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Re: How Important is FDIC Insurance

Post by Alana888 » Thu Nov 29, 2018 5:54 pm

fsrph wrote:
Thu Nov 29, 2018 1:38 pm

I quickly checked some of TIAA's CD rates and they are decent. But, unless you qualify for a special rate there are many other equal, if not better, options here. https://www.depositaccounts.com/blog/cd-rates-survey/
Thank you. These are the rates for personal CD's not business. Most of these banks don't offer business Cd's and when they do the rate is usually significantly lower. It seems that the only way to find out is to call each bank, which I have been doing, but have not yet found one that offers a business CD. If anyone knows of a bank that offers business cd's at a decent rate, I would love to have that info.

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celia
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Re: How Important is FDIC Insurance

Post by celia » Thu Nov 29, 2018 10:20 pm

Alana888 wrote:
Thu Nov 29, 2018 5:54 pm
It seems that the only way to find out is to call each bank, which I have been doing, but have not yet found one that offers a business CD. If anyone knows of a bank that offers business cd's at a decent rate, I would love to have that info.
Alana, I am in the same position with a non-profit. Our board just approved the use of a money market account at a brokerage house, so I will be opening that up soon. However, our board is not comfortable with an online bank. So we will be going with Fidelity which has a branch near us.

An important consideration for us, and possibly for you, is the change-over of officers at the end of each term and the ease of changing signatories. We are all volunteers, so no-one is interested in anything complicated or time-consuming.

glennherwig
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Re: How Important is FDIC Insurance

Post by glennherwig » Thu Nov 29, 2018 10:31 pm

Schwab has a brokerage account called an Organization account. I would suggest opening one of these. It is specifically for entity’s such as non profits and LLC. You then have access to schwab Money Market funds and CDs. Problem solved

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Alana888
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Re: How Important is FDIC Insurance

Post by Alana888 » Thu Nov 29, 2018 11:44 pm

Thank you so much for all the replies and suggestions. I really appreciate it.

I looked at the Schwabb Organization Account and it looks like they have a minimum requirement of $250,000 to open that account and right now we only have $160,000 to invest. We could get to over $250,000 if we terminated our 2 other CD's early, but I think the early withdrawal penalties would outweigh any benefit. If we did open an account with over $250,000 and used it to buy CD's, is the amount over $250,000 FDIC insured or is there the same $250,000 limit on FDIC insurance? My apologies as I am not familiar with brokered CD's or whether the FDIC insurance is different than opening a CD directly with a bank. If there is still the same $250,000 limit on FDIC insurance and at least $250,000, is required to open the account, it would defeat the purpose, which is to make sure all the money is FDIC insured.

Yes simplicity is key and we are definitely looking for something that is not complicated or time consuming. The plan was to put the $ in a 3 year CD with a decent interest rate and then just let it be until maturity.

I am thinking I will do a 6month or 1 year CDARs so I can be comfortable knowing all of the money is FDIC insured and then have some more time to research what would be the best return for the least complication long term.

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dm200
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Re: How Important is FDIC Insurance

Post by dm200 » Fri Nov 30, 2018 9:35 am

Alana888 wrote:
Thu Nov 29, 2018 11:44 pm
Thank you so much for all the replies and suggestions. I really appreciate it.

I looked at the Schwabb Organization Account and it looks like they have a minimum requirement of $250,000 to open that account and right now we only have $160,000 to invest. We could get to over $250,000 if we terminated our 2 other CD's early, but I think the early withdrawal penalties would outweigh any benefit. If we did open an account with over $250,000 and used it to buy CD's, is the amount over $250,000 FDIC insured or is there the same $250,000 limit on FDIC insurance? My apologies as I am not familiar with brokered CD's or whether the FDIC insurance is different than opening a CD directly with a bank. If there is still the same $250,000 limit on FDIC insurance and at least $250,000, is required to open the account, it would defeat the purpose, which is to make sure all the money is FDIC insured.

Yes simplicity is key and we are definitely looking for something that is not complicated or time consuming. The plan was to put the $ in a 3 year CD with a decent interest rate and then just let it be until maturity.

I am thinking I will do a 6month or 1 year CDARs so I can be comfortable knowing all of the money is FDIC insured and then have some more time to research what would be the best return for the least complication long term.
Vanguard brokered CDs can usually be purchased with a minimum of only $10,000 - although some issuers may have higher minimum amounts. Vanguard only offers brokered CDs from FDIC insured banks. Almost always the FDIC limit applies separately for every different named bank. However, occasionally two different named banks share the same FDIC limit. A call to Vanguard brokerage can clarify the coverage. Also, the FDIC coverage is for the face value of the CD. If you buy a CD on the secondary market at a premium - then the FDIC coverage is less than what you paid. If you buy new issues - all is covered up to the $250,000 FDIC limit.

Until recently, I managed (part time) an organization that held a lot of vanguard brokered CDs.

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Re: How Important is FDIC Insurance

Post by Gadget » Fri Nov 30, 2018 9:44 am

I didn't pay much attention because it didn't apply to me, but a Fidelity CMA account has up to 1.25 million fdic insurance because it funnels seamlessly through multiple banks. At least that is my recollection. And from this account, fidelity has money market, cd, treasury, and other options because it is really a Brokerage account disguised as a checking account.

But it may be an option for you to look into.

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dm200
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Re: How Important is FDIC Insurance

Post by dm200 » Fri Nov 30, 2018 10:17 am

While individuals have several ways to multiply FDIC or NCUA federal insurance limits with one bank or credit union, these ways are not available to organizations.

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Alana888
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Re: How Important is FDIC Insurance

Post by Alana888 » Fri Nov 30, 2018 1:11 pm

I "kicked the can down the road" as megabad suggested and put it in a 1 year CDARS which gives me the FDIC insurance on the whole amount, provides a not too terrible interest rate (2.32%) and gives me some time to investigate these other suggestions, many of which I wouldn't have known about ifI hadn't come here for advice, so thats so much to all of you who took the time to read and respond.

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Alana888
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Re: How Important is FDIC Insurance

Post by Alana888 » Fri Nov 30, 2018 2:54 pm

I looked into a Vanguard brokerage account and found out there are several new issue 3 year CD's available with a 3.25% interest rate if held to maturity.
This is a higher rate than the CDARS or the original 3 year cd that we were planning to get prior to discovering it wouldn't be insured.
Since Vanguard gives us the option to purchase at this rate from 4 different banks it provides the option for up to $1,000,000 in accounts that are FDIC insured at this rate.

So appreciative to all of you who led me in this direction.
My error turned into a financial benefit to the organization due your help.

Thank you

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