I mentioned yesterday that NetBank melted down and was taken over by ING Direct. Most customers will have a seamless transition, but not everyone.
Applied Cognetics, a small business, held about $1 million in deposits at NetBank. They won’t be able to access that money for quite some time — if they ever get paid back. Why in the world would anyone keep more than $100,000 in a bank account? The FDIC insures only up to $100,000 per customer (plus another $100,000 if they hold a joint account). That means that if the bank dissolves, customers will still be able to get to their money.
NetBank will owe this money to Applied Cognetics, and any depositor whose accounts were valued higher than $100,000. According to the FDIC press release, customers who have deposited more than the insured amount will receive an immediate payment of half of the uninsured balance. Applied Cognetics might receive the rest of the money eventually, but chances are they won’t be able to access it when they need it.
These are the chances you play with when you deposit more than $100,000 into a bank account. Knowing this, why did Appied Cognetics make this decision?
When Colthrust [president of Applied Cognetics] had approached traditional brick-and-mortar banks to open a commercial account, he found them unhelpful and the paperwork daunting. He never imagined losing access to his money.
Paperwork is a hassle, sure. The chances of a bank declaring bankruptcy are usually low. However, Applied Cognetics could have made better decisions about their money management. If you have lots of cash lying around, diversify across banks so you don’t exceed FDIC limits.
Could They Lose $900k? [Fortune Small Business Magazine]
Yesterday, a bill that was signed into law will help emerging students pay for the cost of their education. There are several facets to the new law, so here’s a summary of the major talking points.
The maximum Pell Grant, which is awarded to students based on financial need, will increase from $4,310 to $5,400 per year over the next five years, starting with $4,800 next year.
20 years ago, a Pell Grant would cover 60% of the average public university tuition cost.
The interest rate for subsidized Stafford loans is dropping to 3.4% over the next four years. If you qualify for a subsidized Stafford loan, the government pays the loan’s interest for you while you are in school. The new law has no effect on unsubsidized Stafford loans.
Struggling graduates can benefit from a new formula to determine their repayment schedule. If you qualify, your lower payments will be based on 15% of your annual discretionary income. This applies to private loans as well, not just government loans.
If you plan on teaching and commit to the profession for at least four years, you can qualify for an additional $4,000 a year in grant money. These grants will revert to loans for anyone who gives up on the education industry.
As you may have noticed, we’ve been undertaking a redesign at Consumerism Commentary, with the intent of reducing clutter. Feel free to leave any comments, particularly if there is any features that no longer work for you. Here are a few articles I’ve read from the MoneyBlogNetwork and beyond this past week:
Index Funds Plus a few Stocks Works for Me. FMF keeps it simple with his investing strategy. This is similar to mine, as well, but my stocks are not performing as nice as I’d like.
Thoughts on Maxed Out. Mighty Bargain Hunter shares his thoughts on the documentary. It’s easy to get into debt problems, but difficult to get out. MBH says the key is preparation.
Words of Wisdom From Alan Greenspan. Five Cent Nickel took notes during the former Fed chief’s appearance on The Today Show. In short, he’s worried about the credit crunch, but he doesn’t believe we’re heading to a recession.
8 Personal Finance Lessons I Learned From Monopoly. Jim from Blueprint for Financial Prosperity has some ideas about how the old game can be linked to personal finance.
Illustrated Debt Snowball. No Credit Needed includes some charts that help visualize how the debt snowball technique worse. The traditional debt snowball (highest balances first) is not the most efficient way of getting out of debt. See 6 Steps to Building a Better Snowball.
Using Quicken to Analyze and Correct Bad Spending Habits. Get Rich Slowly used his software to motivate him to spend less on comics.
A Preview of the 2008 Federal Income Tax Brackets. AllFinancialMatters is way ahead of the game. I haven’t started by 2007 taxes yet.
Using Music to Teach About Money. Alpha Consumer interviews Benjamin Chavis, president of Hip-Hop Summit Action Network, about their program to inspire healthy money management skills in today’s youth.
Have a great weekend!