Chasing interest on your cash is a tough thing to do, especially right now with interest rates being so low. Several years ago, before the financial crisis of 2008-2009, I held funds in what were called “demand notes.” Demand notes, a type of money market fund, paid a higher interest rate than a typical savings account. However, I was concerned, that there were problems with the company that held the demand notes. I wasn’t sure that my money would be safe if they were to declare bankruptcy, so I pulled the funds out, and instead, found a high-yield savings account. This savings account was FDIC insured.
What does that mean?
FDIC stands for Federal Deposit Insurance Corporation. When you put money into a checking or savings account at a bank, your money is insured up to $250,000 per depositor, per bank, per ownership category. This means, that even if something should happen to the bank, as in, it goes out of business, your money is safe, and you will get it back, up to the $250k limit.
What does per depositor mean?
You are a depositor. Your spouse is a depositor. If you have an account in your name, you qualify for up to $250,000 of FDIC insurance for all your accounts in your name at one bank. If you have a joint account, each of you would qualify for $250,000 and so you could have up to $500,000 covered at that one bank.
What does per bank mean?
If you have accounts at a different bank, then you qualify for up to $250,000 of additional FDIC insurance at that bank.
What does per ownership mean?
You can qualify for $250,000 in different ways. Retirement accounts count separately from individual or joint accounts. Trust accounts are treated differently also.
There may be times you want to try to earn a higher interest rate on your cash, without tying it up for too long and not having access to it, like in a Certificate of Deposit with a time limit. In these instances, you may want to consider a money market fund*, which invests in debt instruments that are short-term, like Treasury bills. You can usually get a higher yield, but you give up the protection of FDIC insurance. This means, that there is still a chance that if the company that holds the money market fund goes under, you could lose your investment. Generally speaking, money market funds are still relatively low risk, and the chance of this happening is pretty low.
So, when you are considering where to put your cash, think about whether you are more interested in safety of principal or interest yield. You also don’t have to choose just one. Having the option of both types of accounts is a way to diversify your cash positions and potentially earn a higher return on investment.
*Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Stephens Consulting, LLC, doing business as Stephens Wealth Management Group (SWMG), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.
Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Stephens Consulting. Please remember that if you are a SWMG client, it remains your responsibility to advise us, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.
SWMG is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of SWMG’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request. Links are being provided for information purposes only. SWMG is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors. SWMG is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Important Disclosure.
Please Note: Stephens Wealth Management Group does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to SWMG’s website or newsletter or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.