The FDIC has raised their insurance limits on deposit accounts from $100,000 to $250,000. This means joint accounts can now be covered up to $500,000 in the event of a bank failure.

This should help build some confidence in our nation’s banks and possibly encourage people to save some money.  Here’s the breakdown from FDIC.gov:

Single Accounts (owned by one person): $250,000 per owner

Joint Accounts (two or more persons): $250,000 per co-owner

IRAs and certain other retirement accounts: $250,000 per owner

Trust Accounts: $250,000 per owner per beneficiary subject to specific limitations and requirements

Corporation, Partnership and Unincorporated Association Accounts: $250,000 per corporation, partnership or unincorporated association

Employee Benefit Plan Accounts: $250,000 for the non-contingent, ascertainable interest of each participant

Government Accounts: $250,000 per official custodian

The FDIC (Federal Deposit Insurance Corporation) is a government institution that insures bank deposit accounts up to 100,000 in the event of a bank failure.  Most people know that their normal savings, checking, or CD accounts are covered but there are ways of getting more coverage. If you have over 100,000 in investments then it may be wise to spread out your money if you want to take full advantage of the FDIC.

Joint Accounts
The FDIC insures up to $100,000 for each joint account holder so you can be covered for up to $200,000 if you open a joint deposit bank account.

Brokerage CDs
Brokerage CDs are CDs that can be bought and sold on the market. These CDs are riskier than classic certificates of deposit because they may gain or lose value since they are subject to market risk. The FDIC does cover these brokered CDs for up to 100,000 each.

Retirement Accounts
IRAs and some 401k accounts are covered by the FDIC for up to $250,000. Be aware that you are covered for the total of all your covered accounts up to $250000 (not separate coverage for each account).

Credit Union Accounts
The NCUA (National Credit Union Administration) provides similar coverage to Credit Unions. Of course the Credit Union must be a member of the NCUA to be covered.

Indymac Bank has been shut down however those that had up to the maximum insured amount by the FDIC should be reimbursed 100%. The FDIC will cover up to $100,000 for deposit accounts and up to $250,000 for some IRA accounts. In some cases, amounts over $100000 are also insured (the FDIC has full information as well as an Electronic Deposit Insurance Estimator (EDIE) calculator).

The failure of Indymac Bank is a good example of why you should ALWAYS choose an FDIC insured bank for your banking needs.

The Federal Reserve recently cut the Federal Funds Rate by 1/2 a percent, from 5.25% to 4.75%. This rate is the rate at which banks charge each other for overnight loans.

Banks will now in turn lower their prime rate, which is the best rate that they offer on loans to their customers.

This means a couple of things for investors:

1. Interest rates on loans (mortgage loans/home loans, auto loans/car loans, personal loans) will drop so this is good for people that need a loan.
2. Interest rates on savings, online savings, and CDs will drop.

If you locked in a CD at one of the higher rates in the past few months then you did great! Hopefully you put in a good amount that will make you more money than you can make at today’s current rates.

If you are looking to invest in CDs then you should still consider a short CD at this time. There’s no way to tell if the Fed will drop rates further in the near future.

Many people don’t understand the awesome power of compounding interest. Simply put, compounding interest is making more money with the interest gained from your investment. This way the total principle that you have in the account to gain interest goes up all the time. Even though the interest added is small amounts at a time, you are making more money as time goes by because of the interest made on the interest gained.

The longer you keep your money in the investment the more interest you will make. The higher the interest rate or APR will also net greater gains over lower interest rates or APRs.

Even if you can save as little as 100 dollars a month at a 7% APR you can build $14,507.87 over the course of 10 years. If you did not invest your money you would only have $12,000. Moreover if your investment stayed at a 7% rate of return for an additional 15 years the total of your investment would be $67,899.76 which is a not too shabby for a little retirement nest-egg!

To demonstrate the power of interest rates, we can take the same investment at 4% as opposed to 7%. At the end of a 25 year term the total investment is only worth $42,986.94, a mere 63% of the original amount of almost $68 thousand.

Interest rates are especially crucial when considering long term investments. Many people move their CDs around to get the best possible rate at all times. This is a normal practice and smart investors can make the highest margins possible with this technique. Keep up with the most current information to make informed decisions about your money. Don’t be lazy by keeping your money in a normal savings account if you don’t need access to it for months at a time.

Some banks will give you the option of holding the interest from your CD to the end of the term or depositing the interest monthly into another of your accounts (such as a savings account that you may have with that bank.) If you are offered this choice you should always take the monthly disbursements so you can compound this interest in your savings account.
Here’s a good interest calculator.

CD is a common abbreviation for a Certificate of Deposit. CDs are one of many investment products offered by banks however it is one of the simplest to understand. Banks offer CDs to customers to guarantee a specific interest rate or APY for the customer for a certain deposit amount.

CD INTEREST RATES
CD interest rates are typically higher than ordinary savings accounts but lower than mutual funds. This is because if you have a CD with a bank that is FDIC insured then your investment is guaranteed up to $100,000. As long as you go with a FDIC insured bank then there isn’t really any risk of losing your money. CD rates fluctuate with the market but they’re locked in for the term the day that you open the account. It’s always good to look around and compare CD interest rates when you’re ready to make this investment.

SAVINGS VS CDS

• Savings accounts allow you to withdraw and deposit at any time. CDs do not allow you to add money into the CD during the term.
• You can end your CD early but with a penalty. This penalty can often be MORE THAN THE INTEREST YOU WOULD GAIN by keeping the CD to full term. (You can take a loss because of the penalties associated with early withdrawal.)
• Savings account interest rates fluctuate with the market and are subject to change at any time. CD interest rates are locked in for the period of time stated when the CD is opened.

WHAT KIND OF ACCOUNT SHOULD I OPEN
You can open both an online savings account and CD accounts. Online savings will allow you the flexibility of moving money back and forth without penalties while the CDs can net you more money in the long term. CDs are offered by banks to customers that can part with their money for preset lengths of time from 3 months to 10 years. If you are in a situation where you may need your money soon then this may not be the time for you to open a CD.

INTEREST DISBURSEMENTS
If given the option to receive interest disbursements with your CDs then always say YES. That way you can put the interest to work in your savings account and enjoy the power of compounding interest rates.

Make sure you’re making money instead of spending it
That’s right, you can lose money in an “investment” account if you’re not careful. Inspect the fine print whenever you sign up for a new investment account, whether it be savings, checking, CD, money market, and even 401k and retirement plans. Make sure that you meet the requirements for minimum balances if stated and understand the early withdrawal penalties.

Online Banking-now is the time
If you currently have money in a regular bank savings account, now is definitely the time to consider moving it into an online CD or savings account. Many banks offer higher rates online when compared to their normal branches simply because there are lower overhead costs to managing online accounts. If you need instant access to your money then nothing can beat normal banks. However if you can wait just a few days for transactions to go back and forth then an online savings account will work fine for you. Typically you will still need a normal checking or savings account to link up to your online savings account. Online savings accounts can yield 2 to 4 percent higher interest rates than normal banks! That can be more than double your current savings account rate.

Online CDs-Get the Best Rates
Online CDs have different terms ranging from 3 months to 10 years and they will sometimes also have minimum deposit requirements. Typically the higher interest rates require a higher deposit. Early withdrawal fees vary greatly from bank to bank. Make sure you can part with your money for the specified term and you’ll have nothing to worry about. Researching the best CD rates available when you’re ready to invest can help make the most from your money.

Get Rid of Old Accounts-Make More Money Online
Close out old accounts that are not gaining as much interest. Assuming you’re investing less than 100 to 200 thousand dollars, you will benefit from putting the bulk of your money in the investment that offers the highest interest rate. It’s easy to get lazy and leave some money here and there however if you consolidate the money from all of your bank accounts that are seldom used you may have more than you think.

Schedule reoccurring deposits into your new online savings account
You cannot add money to a CD once you’ve opened one, however you can add money into your online savings account at any time. Some banks such as ING DIRECT have tools available that allow you to schedule deposits for a future date or on a regular basis such as weekly or monthly. There are other banks that have great interest rates but don’t offer this functionality (as of today ELOAN does NOT offer future scheduled deposits with their online savings account.) Just putting in a small amount out of each paycheck will add to your total investment and you’ll soon realize the power of compounding interest.

If you do get a charge from your bank you should always call in to customer service and ask for a one time courtesy refund. I find that it’s best to be courteous and honest with the bank representatives. Of course you cannot do this often but some people often forget that they are the customer and the banks want your business. You can easily save $30 or more depending on the type of fee you incurred (overdraft fees are a very easy and common fee for banks to charge.)