My late mother-in-law used to keep her retirement savings in six different banks so that she never had more than the FDIC-insured limit in any one place.
This daughter of the Great Depression never wanted to risk losing it all to financial crisis. I used to snicker about her money-management ideas, but these days her caution doesn't seem so extreme.
Nationwide Financial Services just became the latest provider of workplace 401(k)s to offer an FDIC-insured option to its savers. The program is too new to measure success, but Anne Arvia, senior vice president of retirement plans, says the initial response has been good. In fact, the plan was launched because customers asked for it.
"This account appeals to conservative savers who watched their savings drop 40 percent." says Arvia. "FDIC protection means more now than it did prior to 2008."
The return isn't so great -- the three-month Treasury rate, plus 75 basis points. That amounts to 0.79 percent today.
Arvia says Nationwide doesn't advise anyone to make this their only retirement savings vehicle, but offers it as a safe place for people to park money while they wait for a better opportunity, or as a stopgap when retirement is just around the corner.
How many 401(k) savers actually keep a lot of money in cash? If you look at human resources consultant Aon Hewitt's 401(k) Index, you'll see that until 2003, the amount of savings kept in cash was barely measurable. But since then the percentage of savings in cash has increased significantly, although it remains a small part of the whole. In March, cash was about 1.34 percent of the total.
Is keeping a little money in an FDIC-insured account a good retirement planning strategy? It won't make you rich, but if it makes you feel more secure, why not?