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FDIC insurance is set to expire at Year-End 2012

FDIC insurance is set to expire at Year-End 2012

Did you know that your Federal Deposit Insurance Corporation (FDIC) insurance is about to expire? In response to the Great Recession, the FDIC offered unlimited insurance protection from January 31, 2010 to December 31, 2012 on non-interest bearing transaction accounts (basically any account that does not earn interest) and IOLTAs (Interest on Lawyer Trust Accounts) used by attorneys. The intent was to instill confidence in the banking sector (companies maintain large sums of money in such accounts to pay their daily operating expenses such as payroll.) But given recent economic uncertainties, many individuals have also chosen to maintain large cash bank deposits. Unfortunately, many of these people and companies are unaware that this unlimited FDIC insurance is set to expire on December 31, 2012. On January 1, 2013, the FDIC insurance will revert back to $250,000 and be subject to how accounts are titled.

What’s “Unlimited”

The unlimited FDIC insurance only applies to non-interest bearing accounts and IOLTAs. It does not include money market accounts, savings accounts, certificates of deposits (CD), or interest bearing accounts. With so many changes and exceptions to the FDIC insurance the past few years, it’s hard for Americans to stay current and ensure their deposits are safe. If you are unsure as to whether your deposits are covered by FDIC insurance or how the insurance works, you can visit the FDIC Electronic Deposit Insurance Estimator (also known as EDIE) at https://www.fdic.gov/edie/index.html. There you can enter the type of bank account(s) and balances, and the site will determine your FDIC coverage. Note that this site is not used for investment accounts.

Financial Impact

Short-term interest rates are already at historical lows because of actions by the Federal Reserve and investors seeking safety. But if the unlimited FDIC insurance is allowed to expire, individuals and companies that keep large sums of cash in these now covered accounts will begin moving their bank deposits into short-term investment assets such as short-term bonds, commercial paper, CDs, and other short-term debt. This migration will further push down short-term interest rates because interest rates move in the opposite direction of prices.

Have a question or need advice on how to manage your retirement accounts? Contact ACap Asset Management at info@acapam.com or 818-272-8511.

Ara Oghoorian, CFA, CFP® is the president and founder of ACap Asset Management, Inc., a “Fee-Only” investment management firm located in Los Angeles, CA specializing in helping doctors and physicians make sound financial decisions. Visit us at www.acapam.com