When Federal Deposit Insurance Limits Your Goals

Whether talking about Thanksgiving dinner, Halloween candy, or nights out on the town, it’s absolutely possible to have too much of a good thing. In that light, the different federal deposit insurance programs can be seen as the financial equivalent to that delicious Thanksgiving dinner. While it’s certainly enjoyable, beneficial, and useful in certain ways, placing too much importance on deposit insurance can make it far more difficult to achieve your financial goals than need be.

A Brief History of Federal Deposit Insurance

As a result of a growing mistrust in financial institutions – almost uniformly for good reason – the FDIC was established in the midst of the Great Depression in order to reestablish and maintain the average person’s trust in our banking system and overall economy. By guaranteeing deposited assets up to a certain threshold, the federal government was successfully able to reinvigorate banks and lending institutions, knowing they would play a vital role in finding solutions to resolve the Great Depression.

Deposit Insurance and You

Of course, from the seeds sown in the 1930s, the FDIC and other deposit insurance programs have significantly grown in stature, most recently as a result of the 2008 financial crisis. Despite the almost century between its inception and now, the missions and goals of the different insurance programs still remain the same – to foster trust and integrity in our banking institutions.

Obviously, none of this is to say that programs like the FDIC are in any way a bad thing. In fact, as maligned as banks have been in the last decade or two, they still play an absolutely critical role in the overall health of our economy and investment landscape. However, as originally stated, the FDIC and similar programs exemplify the concept of having too much of a good thing.

Don’t Limit Your Growth

In short, anything on deposit in a bank or credit union will not grow nearly as well as other instruments like stocks, bonds, and mutual funds over the longer-term. At some point, inflation will start levying a significant impact on the purchasing power of your money as long as it’s held on deposit rather than invested elsewhere.

While the FDIC might provide you much needed peace of mind in knowing that your deposited money is safe, it can also create a false sense of security by limiting what your money does for you. Maximizing your amount of  savings in FDIC accounts an attempt to take full advantage of deposit insurance – particularly when your liquid assets are spread out amongst different banking institutions – may be effectively minimizing how well your money grows over the longer-term.

Instead, try to find a balance between a comfortable amount in savings and other, more growth-oriented alternatives. Like many things in life, deposit insurance will always hold a needed place in our economy but should be used in appropriate measures.

This content is designed to provide general information on the subjects covered. It is not intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market or recommend any tax plan or arrangement. You are encouraged to consult your personal tax advisor or attorney.

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Gary Marriage Jr. is the founder and CEO of Nature Coast Financial Advisors, which educates retirees on how to protect their assets, increase their income and reduce their taxes. Marriage is a national speaker, delivering solutions for pre-retirees, business owners and seniors on the areas affecting their retirement and estates. He is an approved member of the National Ethics Bureau, and has been featured in “America’s Top Hometown Financial Advisors 2011” and was selected to contribute to a book with Steve Forbes titled “Successonomics”


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