Leave room for interest when relying on $100,000 deposit insurance
Posted by: Aaron Pressman on July 28, 2008
Colleague Lauren Young has posted some advisors’ suggested cash protection investment plans for $1 million. I’d just add one caveat. The FDIC’s standard deposit insurance coverage of $100,000 per account ($200,000 for joint accounts and $250,000 for certain retirement accounts) applies to both principal and interest.
So if you are buying CDs, don’t deposit $100,000 at one bank if you also want the interest you earn to be covered by insurance. Most advisors I spoke with for my story about CDARS suggested $95,000, which leaves you under the insurance cap even if you’re getting a 5% interest rate.
