RX Reven'
RX Reven' GRM+ Memberand New Reader
7/14/08 11:22 a.m.

I believe the FDIC as 53 billion in reserve to insure CD’s, T-Bills, & ???...is there significant risk that it isn’t enough?

The reason I’m asking is that for about the last two months, BofA has been aggressively trying to get me to take out a CD. I said OK a few weeks ago and moved 20K from my checking account into a nine month CD…now I’m wondering if BofA knows something I don’t.

Is there any difference; I mean, I could be out of the money in my checking account if a run on the back occurred that couldn’t be covered…is my CD money more vulnerable?

John Brown
John Brown GRM+ Memberand SuperDork
7/14/08 11:28 a.m.

Google Indymac.

You may be screwed, you may not be screwed it all depends on how the agreement is written and underwritten. Apparently if there is more than $100K or if there are any combination of L.L.C. in anything associated with your money you should be talking to your attorney.

RX Reven'
RX Reven' GRM+ Memberand New Reader
7/14/08 11:37 a.m.

Hi John,

The C.D. is from BofA although they may have underwritten it to someone else...I have no idea how this stuff works. I know about the standard 100K limit and I'm way under it with just 20K. I'm just thinking it's a little suspicious that BofA worked so hard to get me (and others...standing in the teller line, you hear many of them aggressively pushing CD's) to take out a CD at this time.

spitfirebill
spitfirebill HalfDork
7/14/08 12:04 p.m.

When banks call me with great deals and offers, I look at them as if they are telemarketers, which of course they were in your case. I worry about BoA a little. They used to be a great bank, but have taken a hit lately.

bludroptop
bludroptop Dork
7/14/08 12:19 p.m.

Your certificate is likely just as safe as your checking deposits, at least from a FDIC standpoint - BOA is likely pushing certificates to raise deposits (that will be sticky). BOA just bought Countrywide and they are trying to raise cash reserves.

aircooled
aircooled Dork
7/14/08 12:25 p.m.

I am curious about the FDIC insurance. They say these things are insured. But based on what the government likes to do when they run out of money (borrow from other things that are supposed to be secure e.g. Social Security), I wonder if there really is any money for the insurance, or is it all theoretical.

RX Reven'
RX Reven' GRM+ Memberand New Reader
7/14/08 12:33 p.m.

Hi bludroptop,

That would be the logical explanation except that I moved 20K from their non interest paying checking account to their nine month CD so they didn’t pick up any capital in the transaction. Ultimately, they made a strong effort to start paying me interest. Perhaps it has something to do with marginal lending where CD money somehow gets a better multiplier than checking account money…I really don’t know.

AngryCorvair
AngryCorvair GRM+ Memberand HalfDork
7/14/08 1:02 p.m.

well, they know that you are less likely to withdraw the balance tomorrow....

Dr. Hess
Dr. Hess SuperDork
7/14/08 1:04 p.m.

Call up your bank and ask them if your CD is FDIC insured.

John Brown, what do you mean by combination of LLC?

RX Reven'
RX Reven' GRM+ Memberand New Reader
7/14/08 1:11 p.m.

Hi AngryCorvair,

Actually, this particular CD allows periodic withdrawals for any amount so I could completely cash out at any time if I wanted.

Also, the new account office made the mistake of mentioning that if my employer was on some special list, they’d give me an extra .25%. My employer wasn’t on the list but while she was checking, I just glanced at the list, picked a name, and said our public name is XYZ but our legal entity name is ABC…see if ABC is on the list.

Oh sir, you’re in luck, it is!!!

Hi Dr Hess,

Yes it is FDIC insured...I made triple sure of that.

littleturquoiseb
littleturquoiseb Reader
7/14/08 1:18 p.m.
RX Reven' wrote: Hi bludroptop, That would be the logical explanation except that I moved 20K from their non interest paying checking account to their nine month CD so they didn’t pick up any capital in the transaction. Ultimately, they made a strong effort to start paying me interest. Perhaps it has something to do with marginal lending where CD money somehow gets a better multiplier than checking account money…I really don’t know.

Your 100% correct here, the CD is considered much more stable, I'm amazed they wanted you in a 9 month and not a longer term CD.

bludroptop
bludroptop Dork
7/14/08 1:22 p.m.
AngryCorvair wrote: well, they know that you are less likely to withdraw the balance tomorrow....

Ding, ding, ding.... we have a winner.

That's what I meant by 'sticky' deposits. Your checking account balance is only as good as the next check you write. The certificate has a very high probability of being there for 9 months, and a pretty high probability of being there much longer. Even if it is a no penalty withdrawal, the statistics are it will stick around.

Lots of banks offer promotional rates on certificates of deposit to get the money in the door. When they mature, the balance rolls over to whatever their standard certificate rate is (which is still a better yield than your checking account). The vast majority of people just let the money sit there.

The other thing is that banks put a value on how many relationships you have with them. If you have your checking, a CD or two, a credit card and (the holy grail) your mortgage with them - you are X-times more likely to use them for everything, and not shop around the next time you need a financial product like a car loan. This is called PFI status (primary financial institution).

This is a big part of the reason why BOA just bought Countrywide - not because the loans they acquired were all that great - but because they just acquired a HUGE new base of customers to cross-sell other products.

The other part of the reason is because BOA had lent Countrywide a big chunk of cash, which they were at risk of losing should Countrywide have gone belly-up (which was a possibility).

Anyway - good job. If you can afford to park that money, a CD is a much better place than your checking account.

John Brown
John Brown GRM+ Memberand SuperDork
7/14/08 1:41 p.m.
Dr. Hess wrote: Call up your bank and ask them if your CD is FDIC insured. John Brown, what do you mean by combination of LLC?

It appears that if your FDIC secured account is for your LLC there is a possibility that you may not get a full reimbursement from the FDIC. I briefed over something this AM (I am looking for the article) and then HEARD the same nugget on NBC news this AM.

The person interviewed had their BUSINESS and PERSONAL accounts as well as mortgages through Indymac. The official stated that the personal savings was absolutely safe and the mortgage was in fine standing. However he could not speak of the business accounts because they were "filed as LLCs and that falls under different rules within the FDIC"

I will research it a bit more.

Dr. Hess
Dr. Hess SuperDork
7/14/08 1:50 p.m.

Thanks. I'm interested in that. I have LP's, not LLC's, so I'd like to know. The brokerage house I use, ETrade, said all accounts are insured by someone or other, but that's just the salesman talking.

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