 Dear
Dr. Don,
My husband and I have saved $250,000. We
planned to keep it all in a CD at our local credit
union, but with all the craziness going on with
financial institutions right now, I question this.
The credit union offers Excess Share Insurance
and funds up to $350,000 are protected through
Excess Share Insurance, or ESI.
We like the rates they offer on
CDs, as well as their bump feature, which allows
us to bump our rate should rates rise. My question
is, are we crazy to keep all our eggs in one basket?
Is our money truly safe with the Excess Share
Insurance, or would you spread it around and not
exceed the typical $100,000 federally insured
balance?
-- C.U. Kelly
 Dear Kelly,
Excess Share Insurance is supplemental share insurance
purchased by a credit union for its members. The
insurer is Excess Share Insurance, or ESI, a licensed
property and casualty insurance company established
in 1992 and domiciled in Ohio. ESI is a subsidiary
of American Share Insurance, or ASI, the nation's
largest provider of private deposit insurance.
Currently this coverage is offered in 32 states
and the District of Columbia.
Coverage is up to $250,000 over
the National Credit Union Share Insurance Fund,
or NCUSIF, on insured share accounts. For traditional
accounts that means total insured deposits of
up to $350,000, and in certain retirement accounts
that combined total is up to $500,000.
While it's the credit union that
is the policyholder, it is required to notify
the shareholder if it stops participating in the
insurance program or if the amount of coverage
changes. It's up to the credit union to decide
if it will charge the shareholder a premium for
this insurance.
Certainly, having the supplemental
insurance coverage is better than not having the
coverage. The risk you're facing is minimal. That
said, ESI doesn't carry the same weight as the
full faith and credit pledge of the United States
government for NCUSIF-insured shares.
If this $250,000 represents all of your life savings then I wouldn't recommend that you have it all in this one credit union. You may not be comfortable investing in stocks and bonds, but it's likely that you need a better hedge against inflation than the yield you can earn on a CD with your credit union.
Treasury inflation-protected securities,
or TIPS, and Series I savings bonds are two investments
that have full faith and credit pledges -- although
TIPS can and will fluctuate in value between purchase
and maturity. TIPS aren't often recommended for
taxable (nonretirement) accounts because of how
income taxes are calculated on the inflation return
component.
I think it's worth your while to
consult with a fee-only financial planner about
your financial goals and investments. The Bankrate
feature, "Financial
planners: not just for millionaires anymore,"
will help you shop for a planner.
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