Question

Jorge and Alana want to keep their savings of $320,000 FDIC insured. Which strategy would fail to accomplish this?

1. Opening one joint savings account with $320,000.
2. Distributing the $320,000 equally into four individual savings accounts.
3. Depositing the entire $320,000 in a single certificate of deposit (CD).
4. Keep $250,000 in a joint deposit account and invest $70,000 in a money market mutual fund at the same federally insured bank.

Answer 1

Strategy 4, involving a mix of a joint deposit and a money market mutual fund, fails to provide full FDIC coverage since the mutual fund is not insured by the FDIC.

Step-by-step explanation:

Jorge and Alana are looking to keep their savings of $320,000 FDIC insured. Strategy 4, which involves keeping $250,000 in a joint deposit account and investing $70,000 in a money market mutual fund at the same federally insured bank, would fail to accomplish full FDIC coverage. The FDIC insures deposit accounts like savings accounts, checking accounts, and certificates of deposit (CDs), but it does not insure investments in money market mutual funds, even those purchased through a bank.

The FDIC deposit insurance limit is set at $250,000 per depositor, per FDIC-insured bank, per ownership category. Since the insurance limit applies per ownership category, options 1, 2, and 3 are covered by the FDIC. However, the money market mutual fund in strategy 4 is not a deposit account and would not be FDIC insured.

Answer 2

The strategy that would fail to keep Jorge and Alana's $320,000 fully FDIC insured is Strategy 4, where $70,000 is invested in a money market mutual fund, as these types of investments are not covered by FDIC insurance.

Step-by-step explanation:

Jorge and Alana have $320,000 to save and wish to ensure that their savings are fully FDIC insured. The FDIC offers deposit insurance up to $250,000 per depositor, per insured bank, for each account ownership category. Therefore, the strategy that would fail to keep the entire amount FDIC insured would be the one that exceeds the insurance limit for a given ownership category.

Strategy 1, opening a joint savings account with $320,000, would fully insure their savings as FDIC provides up to $250,000 per depositor, which in this case would total $500,000 in coverage for the joint account (since there are two depositors). Strategy 2, distributing the $320,000 equally into four individual savings accounts, would also succeed because each account would hold $80,000, staying within the FDIC's limit. Strategy 3, depositing the entire $320,000 in a single certificate of deposit (CD), would keep the entire amount insured as it's just one account for one person.

However, Strategy 4, keeping $250,000 in a joint deposit account and investing $70,000 in a money market mutual fund at the same federally insured bank, would fail because money market mutual funds are not FDIC insured. Although the joint deposit account is insured, the money market mutual fund goes beyond the FDIC's insurance coverage.