Market-wary investors insure millions in cash

U.S. investors seeking safety in cash amid the market turmoil can take advantage of several methods to insure millions above the Federal Deposit Insurance Corp.'s $250,000 limit.

A husband and wife could each have $250,000 in individual bank accounts, the maximum covered by FDIC insurance, and $250,000 each in retirement accounts, such as IRAs, invested in bank products rather than mutual funds or annuities. They also each can set up $250,000 trust accounts naming each other as beneficiaries and deposit another $500,000 in a joint account, where each co-owner is insured up to $250,000.

That comes to $2 million fully insured, FDIC spokesman David Barr said.

Investors are holding on to cash amid concern the U.S. economy may lapse into another recession. Cash at U.S. banks surged 8.4 percent to a record $981 billion during the week ending July 27, the Federal Reserve said in an Aug. 5 report.

"The key is to try and maximize the productivity of that cash, as yields are approaching zero on some money-market funds and bank products," said Tom Dunn, who specializes in cash management for clients with at least $1 million to invest in federally insured programs. Dunn is senior vice president of investments for First Financial Equity Corp. in Dallas.

For those seeking insurance above the FDIC limits at one bank, the Promontory Interfinancial Network LLC will split up a large amount of cash among several banks to stay under the cap.

The Arlington, Va.-based company has been offering this service, known as a certificate-of-deposit-account registry service, or CDARS, since 2003.

"A customer with $1 million who uses one of the participating banks may have the cash placed in CDs at five different banks," company spokesman Phil Battey said. "Each CD is worth less than $250,000 to make sure any interest earnings are also insured."

The network includes about 3,000 banks and savers can insure up to $50 million through CDs in multiple banks. The average holding for individuals using the service is about $925,000, Battey said. Fees for the service are embedded in the offering rates.

Similar services exist that split large deposits into money-market deposit accounts at multiple banks to stay under FDIC limits. Money-market deposit accounts may be FDIC-insured while money-market mutual funds, even if sold at a bank, are not, said Barr, the FDIC spokesman.

Institutional Deposits Corp. provides an interest rate of 0.3 percent to investors and has $745 million in money-market deposit accounts through its network of 184 banks, said Bill Burdette, president of the Miami-based company.

Deposits through the Federally Insured Cash Account, which offers up to $20 million of FDIC insurance at a current rate of about 0.40 percent, increased 7 percent in the last week, Eric Lansky said.

Lansky is a director at StoneCastle Partners LLC in New York, which runs the FICA program. Both FICA and IDC primarily serve businesses and non-profits, plus some high-net-worth investors.

"A lot of our customers have more than $250,000 that they want to insure," said Robin Loftus, chief operating officer for Security Bank in Springfield, Ill. The community bankparticipates in the CDARS and IDC programs because some affluent customers want CDs and others prefer money-market savings accounts for quicker access to their funds.

by Margaret Collins Bloomberg News Aug. 14, 2011 12:00 AM



Market-wary investors insure millions in cash