Whether talking about Thanksgiving dinner, Halloween candy, or nights out on the town, it’s 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 valuable in certain ways, placing too much importance on deposit insurance can make it far more challenging to achieve your financial goals than need be.
A Brief History of Federal Deposit Insurance
As a result of growing mistrust in financial institutions – almost uniformly for a good reason – the FDIC was established amid the Great Depression to reestablish and maintain the average person’s trust in our banking system and the 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 due to 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. As maligned as banks have been in the last decade or two, they still play a critical role in the overall health of our economy and investment landscape. However, as initially 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, mutual funds, or ETFs 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 with 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 savings in an attempt to take full advantage of deposit insurance – particularly when your liquid assets are spread out amongst different banking institutions – is, in effect, 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.
Have questions about how you should utilize FDIC insured accounts at your local bank or credit union, or need help with your financial plan? We’re here to help! Simply click here or call (763) 445-2772 to schedule a complimentary consultation today!
