Too much money with one Financial Institution

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MIGIHIDARI
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Too much money with one Financial Institution

Post by MIGIHIDARI »

My question is this: Is it Risky to buy 4 CDs total over $900K from one Credit Union? Question is not about portfolio allocation. By Risky I mean risk of not being covered for the whole amount by NCUA in case of institute failure.
Thank you!
MH
UpperNwGuy
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Re: Too much money with one Financial Institution

Post by UpperNwGuy »

I wouldn't do it. Why do you want to do it?
steadyosmosis
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Re: Too much money with one Financial Institution

Post by steadyosmosis »

MIGIHIDARI wrote: Mon May 13, 2024 9:14 pm My question is this: Is it Risky to buy 4 CDs total over $900K from one Credit Union?
Yes.
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Gradient Descent
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Re: Too much money with one Financial Institution

Post by Gradient Descent »

Why not divide evenly and buy 4 from 4? Each would be fully insured. Smaller and medium sized institutions seem to be struggling now. A bit more paperwork, of course.
student
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Re: Too much money with one Financial Institution

Post by student »

Don't do it. Too risky.
bongo
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Re: Too much money with one Financial Institution

Post by bongo »

If you are a couple, I think you can get 1m coverage by using 2 joint CDs, and 2 individual CDs.
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celia
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Re: Too much money with one Financial Institution

Post by celia »

You could do it if they where titled as being held by different entities: his, hers, joint, their trust.

if there are lots of beneficiaries listed all together and they each get equal amounts, I think that will cover it also. That is 4 different heirs get up to $250K each.
the_wiki
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Re: Too much money with one Financial Institution

Post by the_wiki »

MIGIHIDARI wrote: Mon May 13, 2024 9:14 pm By Risky I mean risk of not being covered for the whole amount by NCUA in case of institute failure.
Oh in that case, yes, it is risky. You would NOT be covered for more than $250k total.
123
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Re: Too much money with one Financial Institution

Post by 123 »

That would just be too much brick and mortar paperwork and annoyance for me. Is the rate offered that much better than what you can get with a treasury or brokered CD (which are much more convenient)? If they're offering a truly outstanding deal there is likely a reason (and if you knew what it was you might well move your money elsewhere).

Over time I've seen a number of credit union adds that offer a great rate but then have a fine print limit on the maximum balance that the great rate is applicable to. Sometimes the low dollar limit on a great rate turns out to be a big disappointment. Another risk is account renewal at a very low interest rate that you don't anticipate. Could be okay if you keep an active calendar on CD renewals but a problem if you tend to let maturity dates slide into renewals without review.
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billaster
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Re: Too much money with one Financial Institution

Post by billaster »

The unfortunate truth is that the tech bros who had billions of uninsured money in Silicon Valley Bank got bailed out for a supposed risk to the entire banking system. You, with less than a mil -- not so likely.
Topic Author
MIGIHIDARI
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Re: Too much money with one Financial Institution

Post by MIGIHIDARI »

I appreciate all your comments. Point is well taken. Wife and I will look into other institutions, Brokered CDs and treasuries. Have Learned a lot here and by reading books by Jack Boggle, Taylor Larimore etal.
bongo
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Re: Too much money with one Financial Institution

Post by bongo »

MIGIHIDARI wrote: Tue May 14, 2024 1:19 am I appreciate all your comments. Point is well taken. Wife and I will look into other institutions, Brokered CDs and treasuries. Have Learned a lot here and by reading books by Jack Boggle, Taylor Larimore etal.
You could put up to 500k into a joint CD and up to 250k into an individual CD for spouse1 (POD spouse2 if you like) and up to another 250k into an individual CD for spouse2 (POD spouse1 if you like).

Also, you might want to open many smaller CDs that add up to these numbers, if you need to keep flexibility of accessing partial amounts early.
J295
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Re: Too much money with one Financial Institution

Post by J295 »

As indicated above, you have confirmed that exceeding FDIC limits would be an unreasonable risk.

Fwiw, I am quite comfortable holding treasuries at Fidelity and Schwab. Additionally, very easy to administer.
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nisiprius
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Re: Too much money with one Financial Institution

Post by nisiprius »

a) Of course it is riski-ER to exceed the NCUA limits than not to exceed them.

b) The risk is definitely not zero. Around 1990 or so, a Rhode Island credit union, that was insured by a state agency named RISDIC but not by NCUA, failed, and it was very unpleasant for depositors. They were frozen out of their accounts for many months and I am not sure if they were ever made whole, or how long it took.

c) It might not be VERY risky. But you would certainly need to perform some due diligence on the financial status of the credit union. At the very least, checking the ratings with the services that claim to give ratings, based on Texas ratio (whatever the heck that is) and so on, and watching them continuously for changes.

d) It seems like a completely unnecessary risk to take.

e) (Bongo beat me to it) Note that you could set up three accounts at the same credit union. "his," "hers," and "ours" accounts. You could have $250,000 in "his," $250,000 in "hers," and $500,000 in "ours" and they would all be insured in full. I ran that scenario in mycreditunion.gov's insurance estimator and it confirmed it.

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welderwannabe
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Re: Too much money with one Financial Institution

Post by welderwannabe »

No, it's not risky. From a regional bank standpoint, roughly half of all deposits are uninsured at banks (above FDIC limits). I'd expect a credit union to bend lower than that as they tend to cater to less wealthy folks. Therefore having uninsured deposits is not at all unusual.
In 2023 only five credit unions had financial issues where the NCUA had to step in. Of those five, only two were liquidated where uninsured deposits would have been lost. This is out of a total of about 4700 NCUA insured credit unions.

How long has your credit union been there? Is it likely to be there a year from now? Yes. So therefore, it's not risky.

That all said, it is a non zero risk so the question is if you can put CDs somewhere else and have 100% of your money insured, and can get a similar rate, why not do that? There are several online banks that can give nice CD rates you can link electronically to your credit union and have the best of both words.
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sport
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Re: Too much money with one Financial Institution

Post by sport »

Brokered cds are a good alternative.
Onlineid3089
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Re: Too much money with one Financial Institution

Post by Onlineid3089 »

welderwannabe wrote: Tue May 14, 2024 8:13 am No, it's not risky. From a regional bank standpoint, roughly half of all deposits are uninsured at banks (above FDIC limits). I'd expect a credit union to bend lower than that as they tend to cater to less wealthy folks. Therefore having uninsured deposits is not at all unusual.
In 2023 only five credit unions had financial issues where the NCUA had to step in. Of those five, only two were liquidated where uninsured deposits would have been lost. This is out of a total of about 4700 NCUA insured credit unions.

How long has your credit union been there? Is it likely to be there a year from now? Yes. So therefore, it's not risky.

That all said, it is a non zero risk so the question is if you can put CDs somewhere else and have 100% of your money insured, and can get a similar rate, why not do that? There are several online banks that can give nice CD rates you can link electronically to your credit union and have the best of both words.
Just pointing out that I'd suspect that a large portion of those deposits over FDIC limits are more along the lines of business accounts rather than individual accounts. Other than that making the point about half of assets being uninsured somewhat less meaningful, I agree with your thoughts.
Topic Author
MIGIHIDARI
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Re: Too much money with one Financial Institution

Post by MIGIHIDARI »

Thank you Nisiprius and Bongo for a clearer picture! Welderwannabe: it is Navy Federal CU. I should have mentioned it in my first post. We felt US govt will not let this one go Kaput.
MH
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CAsage
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Re: Too much money with one Financial Institution

Post by CAsage »

MIGIHIDARI wrote: Tue May 14, 2024 1:19 am I appreciate all your comments. Point is well taken. Wife and I will look into other institutions, Brokered CDs and treasuries. Have Learned a lot here and by reading books by Jack Boggle, Taylor Larimore etal.
After going through an absurd amount of bungled paperwork, lost faxes, lost Fedex envelopes, CDs rolled over despite instructions trying to transfer money to another CU to chase yields ... I will keep all my money at my brokerage and just buy CDs from there. You can easily choose different CU/Banks.... and no transfer debacles!
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sport
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Re: Too much money with one Financial Institution

Post by sport »

CAsage wrote: Tue May 14, 2024 5:47 pm
MIGIHIDARI wrote: Tue May 14, 2024 1:19 am I appreciate all your comments. Point is well taken. Wife and I will look into other institutions, Brokered CDs and treasuries. Have Learned a lot here and by reading books by Jack Boggle, Taylor Larimore etal.
After going through an absurd amount of bungled paperwork, lost faxes, lost Fedex envelopes, CDs rolled over despite instructions trying to transfer money to another CU to chase yields ... I will keep all my money at my brokerage and just buy CDs from there. You can easily choose different CU/Banks.... and no transfer debacles!
And no auto renewal at below market rates. Just be aware of callable CDs and avoid them if you don't want them.
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