The following is a guest post. To learn more about guest posting on iHeartBudgets, please contact me.
When it comes to saving money, rich people have a lot of tricks up their sleeve to make sure that there money is safe. When I’m talking about rich people, I’m talking about people that have maybe $1 million or more in cash…these are people who don’t qualify for FDIC Insurance on their savings account because they exceed the $250,000 limit. So how do they stash their cash, and can you take advantage of these things as a “normal” person?
One of the first ways that people do it is to take out private insurance on the amount in excess of the FDIC limits. This is a common practice among corporations, but many wealthy individuals have been doing the same as well. This is sometimes easier that paying a wealth manager to spread the money among enough banks to make it worthwhile.
In fact, some banks even offer additional insurance through the bank for their high net worth clients to give them peace of mind for their money.
Along the same lines as insurance, there is a special program called CDARS – Certificate of Deposit Account Registry Service. This is the most convenient way to get FDIC insurance on multi-million dollar CD deposits. What happens if you enroll in CDARS, and they give you effectively one CD, at one interest rate, and get you FDIC insurance on it? On the back-end, they spread the money around to various qualifying financial institutions, while still providing you with one convenient account and statement.
Off Shore Accounts
May high net worth individuals have taken their money offshore for a variety of reasons. Many offshore bank accounts offer a wide variety of features that individuals can’t get in the United States easily, like access to foreign currency accounts and other tools.
These offshore accounts also offer a high level of privacy that is very different from the banking sector in the United States. This can give wealthy investors a little more peace of mind that other individuals cannot find out their true net worth.
But people stashing their money in accounts overseas also have a lot of loopholes to jump through, and it can be time consuming and expensive to get the money back in the United States to use if needed. The IRS still wants savers to pay taxes on their earnings overseas, so once they money comes back, it could be subject to taxation.
The Bottom Line
The bottom line is that regular savers and investors don’t need to worry too much about this because they qualify for FDIC insurance at their regular bank. Plus, other options like offshore banking don’t really make sense because they don’t have a need for it.
If you are getting close to exceeding the FDIC limits, kudos to you! But is it really that much more of a hassle to open a second bank account to continue with FDIC insurance? It only really becomes a problem when you have millions you’re dealing with.
iHB Thoughts: It’s always interesting to see how rich people deal with money. Honestly, I would never have even considered having so much cash that I need to worry about FDIC insurance. When I walk in the bank, I see the $250,000 limit, and just dream about what it would be like to have that much cash in a regular bank account. I’ve also always have a dream to move millions offshore and kick it in my 80′ yacht off the coast of Honduras 6 months out of the year, so I’m glad that I now know what to do when I become rich and famous. Anyone wanna donate a cool $1,000,000 to the cause? 😉
Comments: Anyone have any money offshore? If not, what would YOU do if you had over $500,000 in cold, hard cash to deposit? How about $5 Mil.? Mostly, I just want to know how to come across this kind of cash so I can start worrying about FDIC. I think it’s a good problem to have! #firstworldproblems