FDIC Extension and Impact for You

The FDIC announced recently that FDIC institutions (banks, generally), are now insured up to at least $250,000 per depositor through December 31, 2013.

This is a significant lengthening of the expanded FDIC insurance coverage. When originally announced in October, 2008, the expansion from $100,000 per depositor to $250,000 was to expire on December 31, 2009.

The impact of this on investors is that they should continually review and evaluate interest rates and fixed income choices. You may be surprised by the results. Based on current interest rates, it may be advantageous for even a very high tax-bracket investor to purchase a CD rather than a high quality (AA) municipal bond, for a two or four year maturity. With the extended FDIC insurance, there is no risk with the CD and it should pay a higher after-tax yield than a high quality municipal bond.

This again emphasizes that a fixed income portfolio should be constantly monitored and evaluated, as interest rates and the regulatory environment can create unanticipated opportunities.

Similarly, there is almost a 1% interest rate increase in purchasing a 7 year TIP (Treasury Inflation Protected Security), rather than a 5 year maturity. This is a unique opportunity. For the additional 2 years, the market is providing an excellent interest rate reward.