Morgan Stanley's million dollar insured account not a great deal

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In a bid to attract high-net-worth clients, Morgan Stanley (MS) is touting a new account insured up to $1 million by the FDIC. The company is able to do that because it pays an additional fee to the FDIC for the excess insurance above the normal $250,000.

There's a huge catch though -- the account holder can only earn up to 0.5 percent interest. To compare, the national average for CDs according to Bankrate.com is 1.59 percent for a six-month CD, and 2.60 percent for a five-year CD. There may be even better rates out there if investors are willing to do a little research, as long as they make sure they deposit their cash in an FDIC-insured financial institution.

The House passed legislation Thursday to make the $250,000 FDIC insurance level permanent. The legislation still needs to be passed by the Senate, but the current temporary insurance level is good until January 1, 2010, so there is plenty of time to get the bill passed.

Investors won't find it hard to get the $1 million of insurance either -- they will only be required to open accounts in several categories or several banks. Yet the little extra work involved in opening several accounts is well worth it to get the higher interest rates available elsewhere.

Here are the possible categories investors can use to get $250,000 for each type of account:
  • Single -- one owner, $250,000 insured
  • Joint Accounts -- two or more persons, $250,000 per co-owner
  • IRAs and other retirement accounts -- $250,000 per owner
  • Trust Accounts -- $250,000 per owner per beneficiary, but there are different limits at different banks
  • Corporation, Partnerships and Unincorporated Association Accounts -- $250,000 per corporation, partnership or unincorporated association
  • Employee Benefit Plan Accounts -- $250,000 for the non-contingent, ascertainable interest of each participant
  • Government Accounts -- $250,000 per official custodian
  • Non-interest bearing transaction accounts -- unlimited coverage at participating FDIC-insured banks and savings associations. This insurance is part of the FDIC's Temporary Liquidity Guarantee Program and is due to expire December 31, 2009
Individuals planning to deposit $1 million or more in one financial institution should work with their banker to be certain they've structured the money in enough different categories to be fully insured.

Lita Epstein has written more than 25 books including "Reading Financial Reports for Dummies."
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