jdbower
Platinum Member
FDIC insurance is there to protect the banks, not you. Lets say on the news you hear that MegaBank is having issues with some of their mortgages. Now really they've sold most of their mortgages to third parties so all that's really happening is that they're tightening up their new mortgage authorizations, but that's not good news so people think they're in trouble. People start panicking and pull out their savings to store under their highly flammable mattresses. Now MegaBank really does have issues, they've lost the capital they used to loan out to homeowners and farmers so they start getting into trouble. And thus the prophecy is fulfilled. With FDIC insurance people don't panic as much and they're more willing to leave their money in the bank and ride through questionable times.
Now, let's take a look at your real risk:
1. You're already over the limit, or at least you will be the first interest payment you get. Unless you really meant that you invested enough so that in 60 months you'll have $250,000.
2. There's a strong possibility that the FDIC insurance rates will be extended. The only reason not to is to get people with a lot of cash to invest in something that's higher growth.
3. If not, you've still got a large chunk of your investment covered so you won't be out everything.
4. The only time FDIC insurance comes into play is when a bank goes under. Even with the recent mortgage issues, how many banks have actually filed claims against the FDIC? Especially the big guys? So if the bank goes bust next year you're out your interest. If the bank goes bust sometime in the following four years you're out the interest and possibly $150,000 - unless they extend or even up the current limits.
You're in charge of your own risk. Most of the CD's I've dealt with simply make you give up xx months of interest as a penalty, I don't think closing immediately would cost me anything out of pocket but I've never changed my mind like that so maybe it would. Either way, the majority of your investment is protected for a year and change. If after a year you think the risk is too great, can you live with probably a 2-3% rate of return for the year or is it worth a few thousand of lost interest to gain some security? If the only risk is that the bank will go out of business in a year I wouldn't think twice about it, but then again if I didn't plan to touch the money for 5 years I'd probably dump it into today's depressed market and take my chances that I'd get better than 5%.
Now, let's take a look at your real risk:
1. You're already over the limit, or at least you will be the first interest payment you get. Unless you really meant that you invested enough so that in 60 months you'll have $250,000.
2. There's a strong possibility that the FDIC insurance rates will be extended. The only reason not to is to get people with a lot of cash to invest in something that's higher growth.
3. If not, you've still got a large chunk of your investment covered so you won't be out everything.
4. The only time FDIC insurance comes into play is when a bank goes under. Even with the recent mortgage issues, how many banks have actually filed claims against the FDIC? Especially the big guys? So if the bank goes bust next year you're out your interest. If the bank goes bust sometime in the following four years you're out the interest and possibly $150,000 - unless they extend or even up the current limits.
You're in charge of your own risk. Most of the CD's I've dealt with simply make you give up xx months of interest as a penalty, I don't think closing immediately would cost me anything out of pocket but I've never changed my mind like that so maybe it would. Either way, the majority of your investment is protected for a year and change. If after a year you think the risk is too great, can you live with probably a 2-3% rate of return for the year or is it worth a few thousand of lost interest to gain some security? If the only risk is that the bank will go out of business in a year I wouldn't think twice about it, but then again if I didn't plan to touch the money for 5 years I'd probably dump it into today's depressed market and take my chances that I'd get better than 5%.
