Ask Money

Mom and savings

Chris Farrell Feb 25, 2009

Question: My 76 year old working mother has most of her retirement savings in the stock market so it is just going down. She has been putting her social security money in a GE Interest Plus account because it has a higher interest rate. She has over 300K in that account which is not FDIC insured.

Since the GE account is the only really available money she has, can you help me convince her that it is better to move it to two separate FDIC insured banks even if she gets a lower rate of return? Thanks, I am true believer in your show. Allison, Sheffield, MA.

Answer: I agree with what you’re trying to do. To be clear, General Electric is a good company despite its recent earnings travails. For some people putting a slice of their savings in its short-term debt is a reasonable risk.

But, like you, I am concerned about your mother taking on that risk for a modest increase in interest income. It isn’t a good trade-off. I assume you’ve talked over the risks with her, and she hasn’t been convinced. Still, we live in a financial era where the unthinkable is thinkable, a world where the government nationalizes Fannie Mae and Freddie Mac, quasi-nationalizes AIG, the world’s largest insurance company, takes big ownership stakes in the nation’s largest banks and, most likely, will soon nationalize them (although it may use some other word than the dreaded term, nationalization).

The good news is that your mother is still working, making an income. She works for that money, and I imagine she doesn’t want any of her savings to go poof, not at age 76. So, how about proposing a compromise? See if she’ll agree to put some of the money–a third? half? two thirds?–into FDIC insured products. One thought is to invest the money in a ladder of certificates of deposit, from 3 months to 2 years. She can also get a pretty decent yield on FDIC savings accounts offered by online banks. This way she has the full faith and protection of the federal government behind a large chunk of her savings. But she gets to earn a higher interest rate on the remainder.

Let us know what happens.

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