Say you sell a house. Or a parent dies and the estate finally clears. For a few weeks, $600,000 sits in one account with your name on it.
Only $250,000 of it is insured.
That’s the FDIC’s standard limit: $250,000 per depositor, per insured bank, per ownership category. The other $350,000 is a bet on the bank.
There’s a fix that doesn’t involve driving to four different branches, and on September 1 the FDIC made it a lot easier for your bank to offer it.
Banks call this a reciprocal deposit. Your bank belongs to a deposit placement network. You hand it the $600,000, the network parks your money at other member banks in chunks at or under $250,000, and an equal amount of other people’s money flows back to your bank. The FDIC’s own definition: deposits received “through a deposit placement network with the same maturity (if any) and in the same aggregate amount as covered deposits placed by the agent institution in other network member banks.” One bank, one statement, full insurance on all of it.
So why has almost nobody offered you this?
Because past a cap, the FDIC classifies those deposits as brokered. Brokered deposits feed the bank’s FDIC assessment, and a bank that stops being well capitalized can’t accept them at all. So the cap sets the ceiling on how much of this a bank will do, and until now it was the lesser of $5 billion or 20 percent of the bank’s total liabilities.
The interim final rule published September 1 replaces that with a tiered number: 50 percent of the first $1 billion of liabilities, 40 percent of the portion up to $10 billion, and 30 percent above that, capped at $30 billion.
Run it on a community bank. One with $1 billion in total liabilities goes from $200 million to $500 million. Two and a half times more room. The FDIC’s own worked example, a bank with $25 billion in liabilities, goes from $5 billion to $8.6 billion.
Here’s the catch, and it’s in the same rule. A bank used to need a CAMELS supervisory rating of 1 or 2 from its examiners to use this exception. Now a 3 qualifies. Translation: banks the regulators rate as merely fair are in the pool now. Your money is still insured, which is the whole point of the arrangement. Just don’t read “we are in a deposit network” as a grade on the bank. When a bank does fail, the insurance is what saves you, not the branch.
So do this. Call your bank and ask two questions. Are you in a deposit placement network. And what does the network account pay.
Then compare that second number against a plain high-yield savings account. On $600,000, one percentage point is $6,000 a year. If the network product pays a point less than what you can get on your own, you’re buying convenience at $6,000 a year. That can be a fine trade for the six weeks a house sale takes to settle. It’s a terrible one for six years. Run both numbers through our savings calculator before you move anything.
And if you’ve got an opinion on the rule, the FDIC is taking comments until October 1.
More on where to park cash sits on our savings hub and the best savings accounts page.
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