General Question

John_Mactavish's avatar

Banks in the US, active with the FDIC, only insure $100,000. So if a person has, for example, 10 million dollars and wants to deposit the money in a bank, does he have to look for 100 banks or is there another way to invest that is as low risk as a savings account?

Asked by John_Mactavish (29points) April 2nd, 2008
Observing members: 0 Composing members: 0

9 Answers

cwilbur's avatar

A person with 10 million dollars probably has a diversified investment portfolio with a variety of risk levels and return levels. As a result, his insurance is that not everything will collapse at the same time. Banks are very low risk, especially as they’re insured, but they’re also very low return, which means you can barely get above inflation; since most other investments, well managed, can get you 5%-10% above inflation, banks are a very poor choice for someone with lots of money to invest.

Michael's avatar

Yes. Someone with $10 million who is seeking to have all of it in FDIC insured accounts would need to have 100 separate banks, since, as you pointed out, FDIC only insures up to $100,000 on a per person/per bank basis.

However, even if said hypothetical millionaire were to put all of her money in one bank account, it’s still pretty darn safe. That’s because the mere existence of FDIC insurance makes all savings banks inherently more stable. Banks fail where there is a run (i.e. everyone wants their money right now…a la It’s A Wonderful Life). Runs happen when people get nervous that their money will be lost. People, even in uncertain economic times, have faith that their money is safe in a savings account because of FDIC. Thus, the likelihood of a run on the bank is pretty slim. So, even though this rich lady’s millions aren’t insured, there’s almost no risk in putting her dollars in a savings account.

computertron's avatar

This is where the fancy bank with a briefcase comes in. FDIC is only $100,000, but you can always find a bank that is both secured and insured to carry more cash. It is just a niche market to which the average consumer is rarely exposed.

gooch's avatar

Yes it equates to multiple accounts for protection. Recently there have been banks that FDIC had to bail out due to bad loans/mortgages. The first since the depression.

gailcalled's avatar

Think Bear Stearns and shudder.

And anyone w. 10 mil. can afford a good financial advisor. Last month I earned $.39 from my checking account, which had a goodly sum in it.

cwilbur's avatar

@gailcalled: the two people I know with personal net worth greater than 10 million are savvy enough to be their own financial advisors. The one of them I know best is very close-mouthed about finances, but based on a few of the things he’s said, he’s making somewhere between 15% and 20% return annually on his investments. I’m not sure a financial advisor could do better than that, on average.

gailcalled's avatar

@cwilbur; perhaps you could hypnotize your two acquaintances and find out their secrets. (Or pour water from Neti pot down their nostrils?) And if we are speaking of MY financial advisor, I would make more profit by selling my body. (However, I did tell him “conservative value and income, please.)

My mother pays a financial advisor about what I spend yearly to live on, and he has done very well by her. But she won’t share either..

cwilbur's avatar

The one I know better is a trust fund baby who’s been managing his own investments since he was old enough to understand what investments were. He has a gut instinct for money that I’ve never seen in anyone else, and he’s completely fearless. I’m not sure he could reveal his secrets even if he wanted to; I don’t think even he understands what he does.

The other was also born into money, and I think his secret is just having good financiers.

@gailcalled: Perhaps you could sell (I believe “pimp out” is the appropriate term among today’s youth) your financial advisor’s body? That might get you a few nickels to rub together.

John_Mactavish's avatar

it just came to me that if i just spend $25,000 a month, 10 million would last me 33 years.

Answer this question




to answer.

This question is in the General Section. Responses must be helpful and on-topic.

Your answer will be saved while you login or join.

Have a question? Ask Fluther!

What do you know more about?
Knowledge Networking @ Fluther