# What do you know about FDIC insurance?



## Ruth n Jersey (May 2, 2019)

I'm not much into financial matters but the lady at the bank today made we wonder about FDIC insurance. My parents left me a small amount in CDs. I've never touched it over the years since their passing other than to renew them and I always try to get a better interest rate. It isn't enough to go to a financial adviser or invest in stocks which I wouldn't anyway.

Today I went to a  bank with a better rate. The women seemed very knowledgeable and asked me if I wanted to speak to someone about other products the bank offered which might give me a better rate. I told her I wouldn't sleep at night if I knew my money was not insured. She told me she just found out the FDIC insurance wouldn't pay out for 100 years if the bank collapsed. 

I had heard it takes forever to get your money,but 100 years? She said maybe my great great grand kids might see the money someday. She said if the only thing holding me back is the insurance I should invest in a low risk product because the FDIC isn't going to do anything for me.

Could this be true? I didn't take her advice but wonder what you make of all this. I'd love some input. I've been doing short term cds now because of my age. Never know when I will need it.


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## win231 (May 2, 2019)

Here's some info that may help:

https://www.thebalance.com/payable-death-fdic-increase-357241


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## Old Dummy (May 2, 2019)

Ruth n Jersey said:


> I'm not much into financial matters but the lady at the bank today made we wonder about FDIC insurance. My parents left me a small amount in CDs. I've never touched it over the years since their passing other than to renew them and I always try to get a better interest rate. It isn't enough to go to a financial adviser or invest in stocks which I wouldn't anyway.
> 
> Today I went to a  bank with a better rate. The women seemed very knowledgeable and asked me if I wanted to speak to someone about other products the bank offered which might give me a better rate. I told her I wouldn't sleep at night if I knew my money was not insured. She told me she just found out the FDIC insurance wouldn't pay out for 100 years if the bank collapsed.
> 
> ...



Sounds to me like you talked to someone who is not acting in your best interest -- i.e., a salesperson looking for a commission. I have a substantial amount in FDIC CDs in my Schwab account, and I don't know how quickly the FDIC would pay me back if the banks failed, but it isn't something I'm worried about. 

Google around, you should be able to find enough info to ease your mind.


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## Aunt Bea (May 3, 2019)

Sound to me like you talked to someone with no money! layful:nthego:

I would not be concerned with the FDIC insurance unless you have over $250,000.00 in a single institution or in a single name/account type with the same institution.

In most cases when a bank is about to fail another financial institution steps up and takes over under a deal with the banking regulators so very little FDIC money is actually paid out. 

If the entire banking system collapsed the FDIC would not be able to handle the loss so IMO it is a system based on faith.

Instead of sticking with short term CDs I would look at splitting the money up into a ladder of several CDs with various maturities so you have a portion of the money coming due every six months to a year over a five or six year period.  A ladder of CDs could also be distributed among several banks to help reduce your concern over the safety of an individual bank.


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## retiredtraveler (May 3, 2019)

Ruth n Jersey said:


> ...... I've never touched it over the years since their passing other than to renew them and I always try to get a better interest rate.
> Today I went to a  bank with a better rate. She told me she just found out the FDIC insurance wouldn't pay out for 100 years if the bank collapsed.
> I've been doing short term cds now because of my age. Never know when I will need it.



Aunt Bea gave a good answer. Where that '100 years' nonsense came from, I have no idea.  I'm a long term investor who has in the past, assumed a lot of risk, but you don't have to do that, of course. 

    One tenent of investing is that you have to be able to sleep at night. You do want FDIC insured accounts and virtually every bank has it. Laddering CD's (varying the length) as Aunt Bea stated is a perfectly sound approach and you already know enough to 'shop around' for better rates. 

   I don't know how comfortable you are using a PC. If you're accustomed to doing online business, consider looking for CD's at banks all over the country. You don't need to walk into a bank any longer. Or, you could open an account with a major brokerage firm such as Fidelity. The brokerage firms (not all of them) will have hundreds of CD's from all over the country and show you in chart form ratings, rates, when due, etc. The term for that is a 'brokered CD'. Easy way to go, for me, if you're comfortable with that. And yes, they will be FDIC insured.

   Yes, you could make more money in any number of investments. But if CD's are your comfort level, go with them and as you're doing, get as good a rate as you can and vary the length so you have a fairly ready source of funds, if needed.


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## oldman (May 3, 2019)

Banks are not paying anywhere near what they claim, like “Great Rates!” You should be able to do better with investing your money into an annuity. There are several types, even some that provide a monthly income. There is one annuity that I would stay away from and that’s the variable rate annuity. 

I have 6 different annuities and my lowest one is only paying 3.5%. My best one is paying 8.5% at the moment and that one is called an index annuity, which is tied to the stock market. I never lost a dime with any of them and they are all insured. You can also buy an annuity that you won’t have to keep it forever and most are tax deferred. 

If you listen to Ken Fisher, who owns his own investment company, he says the he would rather burn in Hell before he would buy an annuity. I think he promotes buying stocks that pay high dividends. I have a friend that deals with Fisher Investments and from the way he talks, I think Fisher Investments has done well over time. 

I don’t sell annuities. All that I am suggesting is that maybe you should at least consider speaking to a company that does sell these instruments, like Fidelity, Vanguard or New York Life Insurance.


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## Ruth n Jersey (May 3, 2019)

Thanks to all who responded. I don't have my money all in one basket but in a couple of banks. They talk about sky high interest rates but shorter term interest rates remain very low. I'm not comfortable doing my banking business on the computer. I do look up the banks all over the country and some have let me open an account over the phone. I can't bring myself to do anything but Cd's. I definitely would not sleep at night. I have another Cd that matures in July. I will go back to the bank and at least listen to what the man has to say. I'll report back once I get the info he gives me. Aunt Bea,I'll check out the laddering and see how it works. Right now I am fortunate not to have to dip into my savings because the hubby and social security meet our needs.


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## oldman (May 3, 2019)

Aunt Bea said:


> Sound to me like you talked to someone with no money! layful:nthego:
> 
> I would not be concerned with the FDIC insurance unless you have over $250,000.00 in a single institution or in a single name/account type with the same institution.
> 
> ...




The FDIC is secure. It cannot run out of money. The FDIC keeps a minimum of $12 billion on hand at all times. If those funds were to be depleted, by law, Congress must immediately replenish those funds. Although the FDIC is a separate entity, it is still under the jurisdiction of the Federal Government as a whole. 

This was/is the reason the FDIC was established in the beginning, so that the people would have faith in the banking system, which would (will) prevent another run on banks. Just like when the S&L’s went under, the government stepped in to rescue the accounts that were affected by the drain. 

I don’t even want to begin discussing the S&L debacle. What a mess that was and it took way too long to correct the mess that evolved from it. 

As for CD’s, I used to like them when the interest rates were higher. Now, the banks want to keep as much as they can. Banks make most of their money from the fees that they charge. So, the less that they pay out, the more they make. I know, common sense. The last that I looked, most CD’s were paying around 3%. I still have a few just to act as a hedge against any losses in other securities. 

There are so many ways to make money on investments at this time that it really does become confusing for some of us that aren’t all that knowledgeable. You just need to do your homework and never invest more than you are willing to lose.


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## Trade (May 3, 2019)

Ruth n Jersey said:


> The women seemed very knowledgeable and asked me if I wanted to speak to someone about other products the bank offered which might give me a better rate. I told her I wouldn't sleep at night if I knew my money was not insured. She told me she just found out the FDIC insurance wouldn't pay out for 100 years if the bank collapsed.



I would definitely not recommend doing business with someone that fed you a line of crap like that.


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## fmdog44 (May 3, 2019)

The global financial meltdown of 2008 would show the FDIC had met it's match and we all would be paupers had not a megacrash been avoided by the right moves.


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## mathjak107 (May 4, 2019)

oldman said:


> Banks are not paying anywhere near what they claim, like “Great Rates!” You should be able to do better with investing your money into an annuity. There are several types, even some that provide a monthly income. There is one annuity that I would stay away from and that’s the variable rate annuity.
> 
> I have 6 different annuities and my lowest one is only paying 3.5%. My best one is paying 8.5% at the moment and that one is called an index annuity, which is tied to the stock market. I never lost a dime with any of them and they are all insured. You can also buy an annuity that you won’t have to keep it forever and most are tax deferred.
> 
> ...


i have looked in to these index linked annuities and there is lots of smoke and mirrors with virtual accounts . bottom line is you will not see anything near what they project as an actual return .  i have shown here a few times why these accounts actually give you less then you think.

in fact i had one pitched to us that guaranteed us 10% as a min for 10 years  or whatever the markets produced as a return .when you looked under the hood your actual return sucked  once you see how the accounts work .. you also get no dividends on index linked annuities which right off the bat eliminate 1/4 to 1/3 of the markets gains ...

you can create your own index linked cd's  if you want .. if anyone is interested in how to go about it i can post instructions . they end up being like a cd on steriods in a bull but certainly no where like a market investment .


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## JimW (May 4, 2019)

mathjak107 said:


> i have looked in to these index linked annuities and there is lots of smoke and mirrors with virtual accounts . bottom line is you will not see anything near what they project as an actual return .  i have shown here a few times why these accounts actually give you less then you think.
> 
> in fact i had one pitched to us that guaranteed us 10% as a min for 10 years  or whatever the markets produced as a return .when you looked under the hood your actual return sucked  once you see how the accounts work .. you also get no dividends on index linked annuities which right off the bat eliminate 1/4 to 1/3 of the markets gains ...
> *
> you can create your own index linked cd's  if you want .. if anyone is interested in how to go about it i can post instructions .* they end up being like a cd on steriods in a bull but certainly no where like a market investment .



I am interested in learning more about this Mathjak. If you or the op feel this would be going too far off topic for this thread we can start another thread or you could message me if you'd like. Thanks


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## mathjak107 (May 4, 2019)

JimW said:


> I am interested in learning more about this Mathjak. If you or the op feel this would be going too far off topic for this thread we can start another thread or you could message me if you'd like. Thanks




i did this when interest rates were higher but it gives you enough of an idea ..

[FONT=&quot]How to replicate an equity-indexed annuity (EIA) [/FONT]

[FONT=&quot]--------------------------------------------------------------------------------[/FONT]

[FONT=&quot]A word of caution:[/FONT]

[FONT=&quot]This is not intended to be investment advice. Everything described herein has significant risks, including, but not limited to market risk, default risk, tax risk, the possibility that you will screw up the trades, etc. Please consult your advisor and/or due your own due diligence before making any investment whatsoever..[/FONT]

[FONT=&quot]What is an EIA?[/FONT]

[FONT=&quot]An EIA is an insurance contract that theoretically offers the buyer the opportunity to participate (to some extent) in equity market performance while guaranteeing a minimum payout at the end of the policy guarantee period. The extent to which the buyer participates in equity market performance typically varies year to year as does the minimum guaranteed crediting rate (AKA interest rate paid on the policy). This has proven to be a tantalizing pitch for many conservative investors. The problems with these policies are that you have little control over how much you participate in the equity market; the policies typically have high early surrender fees and very lengthy surrender periods (10+ years is not uncommon); the internal expenses of these policies are quite high; you are exposed to insolvency of the issuer; the participation is typically limited to price changes in an equity [/FONT][FONT=&quot]*index*[/FONT][FONT=&quot], with no compensation for dividends on the [/FONT][FONT=&quot]*index*[/FONT][FONT=&quot]; the participation in the [/FONT][FONT=&quot]*index*[/FONT][FONT=&quot] is capped at a predetermined level so that really big gains are truncated within the annuity structure; and the tax treatment of eventual distributions may be less than optimal.[/FONT]

[FONT=&quot]How you can “roll your own” EIA, part 1:[/FONT]

[FONT=&quot]By far, the simplest way to set up an EIA is to do it in an uncapped version. The simplest uncapped replication portfolio consists of a 1 year fixed income investment (such as a CD) and a call option on whatever equity [/FONT][FONT=&quot]*index*[/FONT][FONT=&quot] ETF you want exposure to. So let us assume you can buy a 1 year CD that yields (APY) 4%, you want exposure to the S&P 500, you have $100,000 to invest, and you want a minimum yield of 1%. To replicate an EIA, you would buy the following:[/FONT]

[FONT=&quot]CD: You want $101k in a year, so you invest $101,000/1.04 = $97,115 in a 1 year 4% yield CD. In a year, the CD matures and you get $101,000, which is your desired minimum payout.[/FONT]

[FONT=&quot]Options: Your CD purchase leaves you with $100,000 - $97,115 = $2,885. You take this amount and buy at the money 1 year call options on the S&P 500 [/FONT][FONT=&quot]*index*[/FONT][FONT=&quot]ETF (ETF symbol SPY). At the money means that the option exercise price is about equal to whatever the ETF sells for today. So with SPY trading at $137.93 as I write this in April 2008, we wish to buy April 2009 calls with a strike of $138. Such a thing doesn’t exist, so we will settle for the closest month we can get, which is March 2009. March 2009 calls (Symbol SFBCH) sell for $12 each and must be bought in contracts on 100 shares each, so you want to buy $2885/$1200 = 2.4 contracts, but must buy 2 contracts for $2400.[/FONT]

[FONT=&quot]So you end up with a CD that will pay $101,000 in a year, $485 in cash, and options on 200 shares of SPY struck at 138. The options cover a notional amount of $138 X 200 = $27,600, so your “participation rate” in the [/FONT][FONT=&quot]*index*[/FONT][FONT=&quot] is 27,600/100,000 = 27.6%, meaning that you catch 27.6% of the appreciation of the S&P 500 through next March while bearing none of the downside. When the options are about to mature, you can sell them for cash, assuming the market has gone up and they are worth anything. Otherwise, you collect your $101,000 from the CD, have your $485 plus whatever interest it generated, and decide if you want to play this game again for another year.[/FONT]


[FONT=&quot]Rolling your own, part 2:[/FONT]

[FONT=&quot]Instead of having a small, uncapped participation in the [/FONT][FONT=&quot]*index*[/FONT][FONT=&quot], you could have a larger participation but cap it at a given level. This is essentially what is done inside the EIA contract sold by most insurers. To replicate the EIA, you would buy the same CD as in the above example. However, the options portion would include:[/FONT]

[FONT=&quot]1) Buy the at the money options on the [/FONT][FONT=&quot]*index*[/FONT][FONT=&quot] as in the above example[/FONT]
[FONT=&quot]2) Sell out of the money options for the same expiration date and underlying ETF.[/FONT]

[FONT=&quot]An example will be helpful:[/FONT]

[FONT=&quot]Lets assume that you would be willing to cap your upside in return for a higher participation rate. That means you want to buy call options at the money ($138 strike) and sell call options at a strike that is about 10% higher ($152 strike). The $152 strike options currently trade for about $5.50 a share. So we buy:[/FONT]

[FONT=&quot]4 contracts of the at the money options (SFBCH) for 400X12 = $4800[/FONT]

[FONT=&quot]And we sell:[/FONT]

[FONT=&quot]4 contracts of the 10% higher strike $152 (symbol SYHCV) and receive cash of $400X5.50 = $2,200.[/FONT]

[FONT=&quot]Total out of pocket for the options is $4,800 - $2,200 = $2,600.[/FONT]

[FONT=&quot]So you end up with a portfolio that consists of a CD that will pay you $101,000 in a year, $285 in leftover cash, and a package of options that gives you up to 10% of the upside on 400 X $138 = $55,200 worth of the S&P 500 [/FONT][FONT=&quot]*index*[/FONT][FONT=&quot]. Note that by capping your potential upside you have increased your participation rate to $55.2% of your $100,000, or double the uncapped version.[/FONT]


[FONT=&quot]About taxes:[/FONT]

[FONT=&quot]If this is done in a taxable account, the CD interest will be taxable and so will the gains or losses on the options. In this case, you would want to set up the portfolio for at least 1 year and 1 day to qualify for long term cap gains on the options. So instead of buying a 1 year CD, perhaps you would buy an 18 month CD and options that expired in 18 months. Inside an IRA or other tax sheltered account this would be of no concern, but your broker may not allow you to set up the capped EIA replication inside an IRA.[/FONT]

[FONT=&quot]Other odds & ends:[/FONT]

[FONT=&quot]- I have ignored transaction costs here. The CD should cost you nothing. Most discount brokers will charge less that $20 for an option trade.[/FONT]
[FONT=&quot]- Brokers generally require customers to apply for approval before they can trade options.[/FONT]
[FONT=&quot]- Note that you can buy options on any [/FONT][FONT=&quot]*index*[/FONT][FONT=&quot] you like that has an ETF with options traded.[/FONT]


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## fmdog44 (May 4, 2019)

Voya is worth a look.


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## JimW (May 6, 2019)

Thank you for that info Mathjak, much appreciated!


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## OneEyedDiva (May 16, 2019)

win231 said:


> Here's some info that may help:
> 
> https://www.thebalance.com/payable-death-fdic-increase-357241



Thank you for posting the link to  this very informative article. I learned a couple of things I wasn't aware of.


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## KingsX (May 29, 2019)

*

Personally,  I wouldn't put my money in anything that wasn't FDIC insured 
except solid tangible assets [like my house]...  but that's just me.

The FDIC knows when a bank is in trouble long before it could go bankrupt.
Those troubled banks are usually purchased by another bank [I think the
FDIC helps with this process.]  The new bank usually honors the old bank's
CD commitments.  Anyway, that's been my personal experience.

*


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## Lethe200 (May 31, 2019)

Aunt Bea said:


> ....If the entire banking system collapsed the FDIC would not be able to handle the loss so IMO it is a system based on faith.



On the contrary, banks are *legally required *to pay premiums to create the FDIC insurance. These funds are invested in US Treasuries for liquidity purposes.

Per both Nerdwallet and the FDIC website:
"The FDIC receives no Congressional appropriations - it is funded by premiums that banks and thrift institutions pay for deposit insurance coverage and from earnings on investments in U.S. Treasury securities"

This is why banks are heavily audited by both state auditors and federal auditors. At the bank I worked at we were audited 5x/yr and seriously dinged if auditors were not satisfied with the "paper trails" on loans and group lending facilities.

Failing financial institutions are put on "watch lists" and even more rigorously audited. This is why the general public has not seen a cascading failure similar to the 1980's S&L scandals (which were swept under the rug by politicians). Notice there are NO savings & loan institutions any longer? Their charters were revoked and surviving S&Ls were forced to join the bank system, with its higher premiums and larger reserve requirements.

Banks that are considered too weak to survive - there were several during the Great Recession of 2008-10 - were merged into stronger banks by FDIC auditors.


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## KingsX (May 31, 2019)

.

Ironically,  I received this FDIC press release via email today [one can sign up to have these emailed to you.]


For Immediate Release


May 31, 2019
Press Release

FDIC Call Center
1-888-408-4360

Legend Bank, N.A., Bowie, Texas, Acquires the Insured Deposits of The Enloe State Bank, Cooper, Texas

The Enloe State Bank, Cooper, Texas, was closed today by the Texas Department of Banking, which then appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Legend Bank, N.A., Bowie, Texas, to assume the insured deposits of The Enloe State Bank.

The only office of The Enloe State Bank will reopen as a branch of Legend Bank, N.A. during their normal business hours starting Monday. Depositors of the failed bank will automatically become depositors of Legend Bank, N.A. Deposits assumed by Legend Bank, N.A. will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage.

Over the weekend, customers of The Enloe State Bank can access their insured deposits by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.

As of March 31, 2019, The Enloe State Bank had total assets of $36.7 million and total deposits of $31.3 million, of which there were approximately $500,000 that exceeded FDIC insurance limits. This estimate is likely to change once the FDIC obtains additional information from these customers.

Customers with accounts in excess of $250,000 should contact the FDIC toll-free at 1-888-408-4360 to set up an appointment to discuss their deposits. This phone number will be operational this evening until 9:00 p.m., Central Time (CT); on Saturday from 9:00 a.m. to 6:00 p.m., CT; on Sunday from 12:00 p.m. to 6:00 p.m., CT; Monday from 8:00 a.m. to 8:00 p.m., CT; and thereafter from 9:00 a.m. to 5:00 p.m., CT.

All customers who would like more information on today's transaction can call the toll-free number or visit the FDIC's website at https://www.fdic.gov/bank/individual/failed/enloe.html.

Beginning Monday, depositors of The Enloe State Bank with more than $250,000 at the bank may visit the FDIC's webpage "Is My Account Fully Insured?" at https://closedbanks.fdic.gov/drrip/AFI/Search to determine their insurance coverage.

Legend Bank, N.A. agreed to assume the insured deposits for a 0.51% premium. It will also purchase approximately $5.2 million of the failed bank's assets. The FDIC will retain the remaining assets for later disposition.

The FDIC preliminarily estimates that the failure will cost its Deposit Insurance Fund about $27 million. The estimate will change over time as the assets are sold. The Enloe State Bank is the first bank to fail in the nation this year. The last bank failure was Washington Federal Bank for Savings in Chicago, Illinois on December 15, 2017. The last failure in Texas was Texas Community Bank, N.A., in The Woodlands, Texas on December 13, 2013.

Media contact:
Julianne Fisher Breitbeil
202-898-6895 (office)
202-340-2043 (mobile)
jbreitbeil@fdic.gov

.


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## Ruth n Jersey (May 31, 2019)

Thanks to everyone for your help. My son looked up the info I received at the bank about the insurance not paying should something happen and he found it to be false information that is just circulating online. I actually went back to the bank to find out where she got the information from and she is now working at a different branch. I also had a financial adviser call me about a week ago asking me to come in so we could discuss options other than Cd's. I declined. I think they may have been working together. As of now I've put the money in a cd that is insured and I will sleep better knowing it is safe. A little less money but no stress.


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## fmdog44 (May 31, 2019)

How does a person that wins say, 10 million dollars (+) handle saving that money? Not interested in tax numbers only the amount of 10 million or more.


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## KingsX (May 31, 2019)

Ruth n Jersey said:


> Thanks to everyone for your help. My son looked up the info I received at the bank about the insurance not paying should something happen and he found it to be false information that is just circulating online. I actually went back to the bank to find out where she got the information from and she is now working at a different branch. I also had a financial adviser call me about a week ago asking me to come in so we could discuss options other than Cd's. I declined. I think they may have been working together. As of now I've put the money in a cd that is insured and I will sleep better knowing it is safe. A little less money but no stress.




Never underestimate the value of a peaceful night's sleep !

For decades financial experts have advised older people to keep their money more secure [less time and ability to recoup losses.]

I just had a Roth IRA transferred from one bank to a different bank with a better CD rate.

.


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## Lethe200 (Jun 1, 2019)

>>_he told me she just found out the FDIC insurance wouldn't pay out for 100 years if the bank collapsed. >>

_This is either a deliberate misstatement, or more likely, a misunderstanding of the actual FDIC guidelines.

The FDIC has, by law, a time period allowed of *up to 99 years *to repay deposits - but in actuality, it has NEVER taken anywhere near so long. In fact, by managing the process of merging weak banks into stronger banks, the FDIC has not been forced to pay out any large amounts of deposits.

++++

Annuities have their uses, but they also have extremely high fees. If you subtract the fees charged from the return they give you, it usually is much less attractive. There are also substantial penalties for cancellation, usually within the first 5-7 years, should you need your principal back in an emergency.


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