Financial question... (1 Viewer)

[Andrew Bunk]

Question for any that may have had experience with this. Let's say someone you know (not me unfortunately ) receives a large check, which totals more than one (or several) banks can insure under FDIC. You want to deposit the check as soon as possible so the money is "yours", but you're not sure what your long-term financial plans will be (haven't been referred to a financial planner yet).

Just looking for some opinions on what the safest way is to initially deposit a check like this.

 

[AjayM]

If you have multiple banks it's easiest just to deposit some in each account (multiple accounts at the same bank doesn't work unless the accounts are "owned" by different people). There are banks out there with higher insurance limits, maybe even your friends (call the bank and ask them).

Andrew

 

[Michael Reuben]

A client of mine just had to deal with this. The simplest solution is to deposit the check to an account at a major financial institution, one that is unlikely to go under (unless the world as we know it comes to an end, in which case FDIC insurance wouldn't do you much good ). Where I am, that would be something like Citibank, Bank of America or Chase.

The thing to remember is that, with a check of that size, there will be probably be additional time before the money is "yours". Financial institutions now routinely make inquiries to confirm the authenticity of such checks, especially if the depositor is opening a new account. My client deposited a large check with a major financial institution on a Monday, but the funds weren't available for a week, because the bank insisted on contacting the maker to confirm that the check was genuine. (I know, because I was the maker.) For a new account, they will also require various forms of ID (a Patriot Act requirement).

M.

 

[Michael Reuben]

You can't deposit a single check to different banks. You have to deposit it to one bank, and then move the money after the check clears.

M.

 

[Mort Corey]

Agree with the major institution deposit. Banks like JP Morgan Chase, BofA etal, are considered too big to fail. The Fed would ride to the rescue much as they did a few years ago with Long Term Capital. Unless this check is from the Pentagon for next years budget, you'll be OK.

Mort

 

[AjayM]

True (didn't mean to imply otherwise). I don't know how much we're talking about here, where the money came from, what it's intended use is, etc, etc. All of the above would influence my adversity to risk, if we're talking about $105k, I'd dump it into a single account at a big bank, the hassle of dealing with multiple accounts/multiple banks is not worth the $5k IF the bank were to go under. If we're talking about $1.05M then that changes things completely.

I'd go talk to somebody at the bank, or a financial planner (depending on what the money is to be used for) myself, they will give you much better advice based on all of the details than we can.

 

[Joseph DeMartino]

As Michael indicated, just have the lucky person pick an institution you're all confident isn't going to disappear in the next 30 to 60 days and make the deposit. Then they can sit down with a reputable financial advisor and figure out the right mix of investments to put the money to work in, as well as budgeting for immediate, short and mid-term expenditures. By the time some rational plans are on the table the check will have "cleared" and barring nuclear war of a comet impact, the money will still be in the bank. Really, a month or two is not going to expose anyone to any real risk unless you're putting the money into Phil's Bank or giving it to me for safekeeping. (Which is an option if your friend/relative/whatever is willing to consider it. PM me, we'll talk. )

Most of the investments that a smart advisor would recommend (at least those that offer any kind of worthwhile return) aren't going to be FDIC insured, anyway, so this is really less of an issue than people make it out to be. What you need is a temporary parking place for the money, emphasis on temporary. As long as there is little to no danger of something catastrophic happening during that brief window of time, insurance is really besides the point. Would you worry about not having renter's insurance while staying at a friend's time-share for a week that's safely outside of hurricane/wildfire/tornado season?

Regards,

Joe

 

[Holadem]

Damn! Michael, you're good man to know!

Soooooooooooo, how about dinner?

--
H

 

[Andrew Bunk]

Thanks for the advice guys. We're talking about a healthy six figures, so nothing huge, but still significant. Lots of big banks in the area so options are there. This will definitely be a temporary parking place. Plans are to meet with a planner next week. This is for a family member, so I will be involved to an extent.

Sorry if I am somewhat cryptic on the specifics. Not really supposed to talk about the nature of the income. I swear it's not illegal!

 

[Michael Reuben]

I wondered whether anyone would pick up on that.

I was just an escrow agent. If I tried to write checks of that size in my own capacity, they'd bounce higher than flubber.

M.

 

[Joseph DeMartino]

I'd still rather deposit an amount like that in a bank for the few weeks that it would take me to get my act together than keep it in my house and worry about a fire or on my person and worry about losing it or getting robbed. Again, unless the bank actually fails, the money is going to be there.

Regards,

Joe

 

[Holadem]

Nevermind then. I only talk to rich people.

Next.

--
H - like Andrew's friend... OK, I'll stop.

 

[Michael Reuben]

I read your posts. You'll talk to anyone.

M.

 

[Joseph DeMartino]

Well I hope you're getting a percentage, or a consulting fee for something.

Joe

 

[Jon_Are]

This is a good spot for one of my favorite jokes:

A man walks into a bank. The teller says, "may I help you?"

The man replies, "Yeah, I'd like to open a f*&#%ing savings account."

Teller replies, "Sir, we don't allow that sort of language here. Now, let's try this again; may I help you?"

"You heard me, I want to open a f*&#%ing savings account!"

Just then the manager, having heard the commotion, strides over. "Is there a problem here?"

"Yeah, there's a problem," says the customer, "I just won 12 million dollars in the lottery and I want to open a f*&#%ing account!"

"I see," replies the manager, nodding toward the teller. "And this bitch is giving you a hard time?"

 

[Tom Rags]

Jon_Are, that is classic. Never heard that one before

 

[Michael Reuben]

Great joke! Except . . .

It's out of date. With all the Patriot Act requirements, the attitude of banks today when confronted with a new account and a sizeable deposit is very different. They're still happy to get your money, but you have to jump through hoops before they'll take it. (Among other things, my client had to go home and get his passport to show them.)

M.

 

[andrew markworthy]

I'm sorry to sound stupid, but as a Brit just amuse me - there's actually a limit on the size of deposit a US bank will take? Just how insecure are your banks? Okay, some of the larger UK banks could eat a tidy proportion of American banks for breakfast without batting an eyelid, but even the small ones don't have these restrictions.

I've twice deposited the equivalent of half a million dollars in my account (from house sales - the money went out a few weeks later (and more besides, alas) to pay for another house, before you speculate on my wealth). The most I ever got from the bank teller was a laconic 'would you like this putting in an interest-bearing account?'.

 

[Michael Reuben]

No. There's a limit on the amount that is insured against loss by the Federal Deposit Insurance Coporation ("FDIC"). It's $100,000 per person per bank. A million dollars deposited at one FDIC-insured bank is insured for only the first 100 grand. A million dollars deposited in equal shares at 10 FDIC-insured banks is fully insured.

M.

 

[Joseph DeMartino]

Savings and loans and other "thrifts" are similarly insured through the FSLIC. (Federal Savings and Loan Insurance Corporation.) There is a pretty good argument to be made that this whole structure of "saftey nets" actually makes banks and thrifts more likely to fail by encouraging lenders to make more risky loans precisely because somebody is else is insuring their deposits. A lot of people think that deposit insurance was a response to the Great Depression and the bank failures of the time, but in fact state deposit insurance was common at the time and greatly contributed to the high bank failure rate that followed the stock market collapse. (Another major factor was anti-competitive state laws that prevented banks from opening multiple branches in different cities and which virtually outlawed interstate banking - making it impossible to spread risk out broadly across the economy. So a downturn in farm income in a town would often wipe out all the local banks along with the farmers and the value of their now-foreclosed land.)

And not all banks are Federally insured. Private banks are delighted to take deposits in any amount, because insurance isn't an issue. Also banks don't always simply deposit your money in an interest bearing insured account, but may put it in a money market, CD or other instrument/investment account that is not covered by Federal insurance. And it isn't just the recent Patriot Act that has increased the paperwork and scrutiny for large transactions. Twenty years of the war on drugs and other white collar crimes had already added many of those hoops that people jump through and now automatically blame on the Patriot Act. Is $100,000 still the point at which single deposits have to be reported to the Feds?

Regards,

Joe