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Dear Dr. Don,
I used the Bankrate CD calculator and assumed an investment amount of $1 million. The program returned multiple
CDs in the same bank, with the total held in one institution exceeding the FDIC insurance level.
How would I follow the ladder guide but also be able to have the entire amount protected by FDIC
insurance?
-- Gary Guarantee
Dear Gary,
It has been a while since I last tried out the
CD calculator, so I took it for
a spin. The calculator lets you decide how far
apart the rungs are on the ladder, but assumes
a time horizon of five years.
What's neat about the calculator is that you decide whether you are willing to purchase CDs
nationwide or just in your market, and the calculator returns the best yields available for a rung given your decision.
You're right to be concerned about FDIC insurance limits in laddering your portfolio. Depending on
the type of account and the account owner(s), you may be able to have more than $100,000 in insured deposits with a
single financial institution.
Some retirement accounts, for example, are insured up to $250,000. Joint accounts may provide additional
deposit insurance coverage.
I would not recommend that you have
uninsured deposits. Check with the bank, or refer
to the FDIC publication "Your
Insured Deposits."
The FDIC also has the Electronic
Deposit Insurance Estimator available on its
Web site. The National Credit Union Share Insurance
Fund, or NCUSIF, Web page has links
to similar publications and estimators.
Using Bankrate's CD rate
search functionality can let you search for
banks that are offering yields on CDs that are
close to the yields shown when using the CD calculator. That would allow you to
select different financial institutions and eliminate
the uninsured deposit issue.
Another alternative is to invest in
certificate of deposit account registry service
CDs. The Bankrate feature, "CDARS:
An easy way to beat the $100,000 FDIC limit,"
explains this investment option in greater depth.
You can invest the $1 million in one banking transaction but have the investment fully FDIC-insured.
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