FDIC Will Raise Limits, Do You Want To Know Why?

I’ve been writing about FDIC for a while now and I’ve written about the fact that FDIC really only insures about $44,000 and not $100,000 as most people think so why is everyone rushing to increase limits to $250,000 now?

The answer is obvious:

Let’s say you have $400,000 in cash lying around. You’re smart enough to know that banks will only insure $100,000 on any ONE account at a bank so you decide to spread your money around.

• You open an account at Chase and put $100,000
• You open an account at WAMU and put $100,000
• You open an account at Wachovia and put $100,000
• You open an account at Citigroup and put $100,000

You pat yourself on the back for your ingenious plan to insure 400k when FDIC will only insure 100k. But this week, you find out that Chase has bought WAMU and Citigroup has bought Wachovia. Oh no! Your ingenious plan has been foiled! You now only have 200k out of 400k insured! Panic! Panic! Panic! You run over to Chase and Citi and pull out 100k from each bank and start looking for a new bank to put that money in so where do you go?

Of course, now you start wondering if any bank is safe or which one will be gobbled up next and if a bank is really the best place for your money. Perhaps you take that cash and pay off your mortgage…..or perhaps you start buying gold with it…..or perhaps you decide to pay off those auto loans, HELOCs, and other debt…..or perhaps you buy real estate in a foreign country….or buy US Treasuries.

Whatever your decision, it likely results in banks having less capital and makes the existing problems even worse and that’s why there is a rush to raise the FDIC limits now. There is one HUGE problem with raising the limits though and I hope someone will be saavy enough to let everyone know what it is…….if not I’ll tell ya later 😉