The Federal Deposit Insurance Corporation (FDIC) insures the safety of checking and savings deposits in member banks up to $250,000 per depositor per banking institution (not per bank branch). That means an association can have a dozen $250,000 CDs from twelve different banks, thereby having $3 million covered by FDIC insurance. If a board places $500,000 in a single bank (for a jumbo CD to receive a greater return on its money) and the bank fails, the association loses $250,000.
Recommendation: Boards should not exceed $250,000 per financial institution (unless the bank has private insurance to cover the monies). Instead, they should spread their association's money across various FDIC insured institutions. One way to conveniently spread the monies is to use brokerage firms or use banks who are part of the CDARS program. See the FDIC website for more information about deposit insurance.
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