What is the FDIC and what are its insurance limits?

Created on Sunday, 05 July 2015 19:00

Q: What is the FDIC and what are its insurance limits?

A: The Federal Deposit Insurance Corp. (FDIC) was created in 1933 in response to many bank failures during the Great Depression. Its goal is to preserve and promote confidence in the financial system by insuring bank deposits. Because insured deposits are backed by the full faith and credit of the
U.S. government, investors can feel secure that their deposits are safe even if the bank were to fail. Insured products include money markets, checking and savings accounts, and CDs.

In general, deposits are insured up to $250,000 per depositor, per insured bank. What is lessor known is this insurance is further applied to separate account types. This allows depositors to potentially have considerably more than $250,000 at one institution while being fully insured. The FDIC currently has eight separately insured ownership categories.

Source: https://www.fdic.gov/deposit/deposits/brochures/deposit_insurance_at_a_glance-english.html

As an example, a husband and wife could each have an individual account and an IRA at an FDIC-insured bank. Because each account falls into a separate ownership category, the deposits would be insured up to $250,000 per account for a combined total of $1 million. The couple could also have a joint account with an additional $500,000 in FDIC coverage. Deposits in trust accounts could further add to the insured amount.

Because there is the potential for large losses of principle in the event of a bank failure, we do not advise exceeding the FDIC limit on deposits. Because of the heightened risks, our client accounts are monitored for FDIC compliance on a daily basis.

Copyright © 2015, The BAM ALLIANCE. This material and any opinions contained are derived from sources believed to be reliable, but its accuracy and the opinions based thereon are not guaranteed. The content of this publication is for general information only and is not intended to serve as specific financial, accounting or tax advice. To be distributed only by a Registered Investment Advisor firm. Information regarding references to third-party sites: Referenced third-party sites are not under our control, and we are not responsible for the contents of any linked site or any link contained in a linked site, or any changes or updates to such sites. Any link provided to you is only as a convenience, and the inclusion of any link does not imply our endorsement of the site.

Staying Out of Your Neighbor’s Business

Created on Sunday, 28 June 2015 19:00

Humans can be a competitive lot. The way we posture and position ourselves to stand out in a group seems to happen instinctively. After all, in the past we competed for resources and survival. Our lives depended on it. Today, we still compete, but for different reasons.

Instead of food, we compete for attention and social currency. To figure out if we’re “winning,” we use visual shortcuts, and money offers one of the easiest ones. We look around and compare how we’re doing with what we see.

But there are a few problems with this approach. We don’t have access to our neighbors’ balance sheets, so we’re relying on the consumption we see, not true net worth. So we only think we know how they’re doing, and what we think we know can get us in trouble.

Imagine you come home one night and take a walk around the neighborhood. During your walk, a neighbor pulls up in a new Porsche Panamera Turbo. (The sticker price on that model starts at somewhere around $140,000, and I know you just looked it up.) You chat for a few minutes, and he tells you how much he loves driving the car.

Pause for just a second. I want you to make a mental note. What did you think about your neighbor and his car as you walked away?

I’m betting your thoughts jumped to something like, “He must make a lot of money,” or “How can he afford that car?” You made a judgment. You told yourself a story based on what you’d seen (a new car) and what you’d heard (I love driving the car).

See the problem? This story relies on one fact. You know your neighbor loves driving the new car, but the rest of your story qualifies as a fairy tale.

Let’s add a few wrinkles to this story:

• What if he took out a home equity line of credit to cover 100 percent of the car’s price?
• What if he recently sold his business for $1 billion and, as a percentage of his net worth, the new car is a drop in the bucket compared to yours?
• What if he got a new job at the Porsche dealership, and he gets to drive the car as a demo for a few days?

Your story changes if any of these facts proves true. Your neighbor may be rich. He could be leveraged to the hilt. You just don’t know. So what’s the point of comparing and feeling competitive without knowing the whole story?

I’ve been thinking a lot about this subject recently after a friend recommended Byron Katie’s work. I love the clarity she provides with the idea that there are only three kinds of business in the universe: my business, your business and God’s business.

To tweak her example a bit:

• Whose business is it if your neighbor has a Porsche Panamera Turbo in the driveway? Your neighbor’s.
• Whose business is it if you feel badly because your neighbor “must make a lot of money” to drive a Porsche? Your business.

I know we like to compete. But we’ll always lose if we’re judging ourselves based on stories that rely solely on someone’s demonstrated consumer behavior. Luckily, we don’t need an outside force to solve the problem. We just need to stop competing and realize that our neighbor’s business isn’t our business anyway.

Meddling in our neighbor’s business rarely leads to good outcomes anyway. That leaves our own business. Plus, staying focused on our business comes with a side benefit. We no longer need to worry about our ranking or anyone else’s in this grand, social competition we call life … because we realize it’s none of our business.

This commentary originally appeared June 1 on NYTimes.com

Copyright © 2015, The BAM ALLIANCE. This material and any opinions contained are derived from sources believed to be reliable, but its accuracy and the opinions based thereon are not guaranteed. The content of this publication is for general information only and is not intended to serve as specific financial, accounting or tax advice. To be distributed only by a Registered Investment Advisor firm. Information regarding references to third-party sites: Referenced third-party sites are not under our control, and we are not responsible for the contents of any linked site or any links contained in a linked site, or any changes or updates to such sites. Any link provided to you is only as a convenience, and the inclusion of any link does not imply our endorsement of the site.

Level: Can A Budgeting App Change the Way We Bank?

Created on Sunday, 21 June 2015 19:00

“Level is dedicated to rewriting the financial rulebook to create a secure future for the next generation.” That’s budgeting app Level Money’s stated mission, which can be found on their website’s “About Us” page. But even as lofty as that objective sounds, co-founder and CEO Jake Fuentes says the company’s sights are set even higher.

“Basic everyday money management,” he suggests, could be “the first step toward changing—or creating—the next generation’s banking structure.”

An app that hopes to change the way the next generation banks? I’m listening.

Jake wants to relegate money to a place where it’s “not the center of our lives.” And although Level Money seems targeted to the younger generations, he refers to this place as something we can “go back” to.

Indeed, we often romanticize previous time periods and generations as the intervening years grow. But it’s hard to argue that Generation X and the baby boomers aren’t more obsessed with money than their predecessors. Gen Y and Millennials, on the other hand, seem less so.

So, with all this generational talk, is Level Money only accessible to the younger set? “We think that we’re most applicable to Gen Y,” says Fuentes, primarily because Gen Y is less likely to already have adopted a cash flow methodology. “But the fact is that we help people spend less than they make, and that’s a universal concept.”

According to Fuentes, “There’s a gulf between the way that financial institutions communicate”—through accounts, transactions and interest rates—“and the way that humans understand their money.”

So, how exactly do humans understand their money? Well, we used to simply open our wallets and see how much cash we had to spend. Today, most of the real estate in our billfolds is ironically dedicated to various plastic cards, which are attached to numerous electronic accounts. Cash is now more of an adornment than the primary way we transact.

Level wants to bring the old-school wallet back, packaged in the form of a highly sophisticated but elegantly simple app. Its central feature, the “Spendable” page, estimates how much you have left to spend today, this week and this month. The Spendable number is generated initially by populating three inputs: our monthly Income, recurring Bills and the desired AutoSave amount we choose to set aside. The balance is our Spendable cash flow.

Where many budgeting apps fail is in making the barriers to entry too high. They force you to use their preferred credit card and/or bank accounts. Or they require significant time to track down your bills and create endless categories.

The only barrier imposed by Level is a requirement to enter the online banking information for your already established accounts. Once you’ve done so, the app aggregates transactions from all of your financial accounts and automatically calculates which are recurring bills versus discretionary spending. Then, instead of forcing you to categorize each transaction, the program simply focuses on how much you have left to spend over those three intuitive periods—today, this week and this month.

“The overall goal is to push money management to the background,” says Fuentes. “The idea isn’t to have people spending a lot of time in the app itself, but to get all the information they need quickly and move on.”

Just open up your “wallet,” make an informed decision and continue on with your life.

Level Money was birthed in part to solve a simple, but prolific, problem. And it’s one to which no demographic is immune. Fuentes had just finished enjoying a good meal with great friends. Then, as the server neared the table with the check, his stomach turned. Did he have enough in the account attached to his debit card to cover it? After a $25 overdraft fee, he learned the hard way that he didn’t.

Fuentes will likely not suffer that fate again, and not just because he uses Level. In early 2015, Capital One announced it had purchased Level Money. Fuentes stayed on with the new venture, but I couldn’t help but ask if joining one of the most recognizable names in finance was in alignment with all this missional, change-the-way-people-bank dialogue.

Fuentes chuckled at the apparent irony, but he assured me that this was a natural and beneficial step in the evolution of his company. And I can buy that; after all, his parent company’s Capital One 360 offering (formerly ING Orange Savings Direct) is often recommended by financial advisors and media observers as a forward-thinking product.

Fuentes assures me that the app will remain free, and also free from proprietary restrictions that might force consumers to use a Capital One account to access it. “We have no plans to make a Capital One account a requirement.”

So what’s next for Jake? “Creating a next generation banking experience is a life’s work,” he says

Let’s hope it doesn’t take that long.

This commentary originally appeared May 22 on Forbes.com

Copyright © 2015, The BAM ALLIANCE. This material and any opinions contained are derived from sources believed to be reliable, but its accuracy and the opinions based thereon are not guaranteed. The content of this publication is for general information only and is not intended to serve as specific financial, accounting or tax advice. To be distributed only by a Registered Investment Advisor firm. Information regarding references to third-party sites: Referenced third-party sites are not under our control, and we are not responsible for the contents of any linked site or any links contained in a linked site, or any changes or updates to such sites. Any link provided to you is only as a convenience, and the inclusion of any link does not imply our endorsement of the site.