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Old 02-02-2010, 11:59 AM
kaylasdad99 kaylasdad99 is offline
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Interest bearing checking accounts What are the limits?

My little fantasy is to win the lottery, and stop needing to work to make my living. Letís stipulate up front that I donít really expect that I will win the lottery. That said, this game is a lot more fun if I can play with some real numbers.

My vague idea is that Iíd take the cash value of the jackpot, and put the entire amount into an interest-bearing checking account. So, letís say I win the $144M Mega Millions jackpot this week. The cash value would be roughly half of that, after taxes, giving me $72M to put into my checking account. If I posit a 2% interest rate, and 40% taxes on those earnings, Iíd earn $864K/year after taxes, or about $72K per month (or more than I could spend even if I tried, not that I would feel inclined to try).

Well, today I was wondering if my numerical assumptions hold any water, so I googled ďannual rate on interest-bearing checking accounts.Ē One of the first hits on that spoke of a 3.93% rate, which strikes me as really good. But it also said that this is on checking account balances of less than $50K. The link, when opened, did not tell me what kind of rate is placed on accounts of greater than $50K. Is it more? Is it less? Now I suppose I could open up 1440 different checking accounts at $50K each, skim the $163.75 monthly earnings off each one, bring the $65.50 (times 1440) to the tax collector, and pocket the other $98.25 (times 1440, which comes to some $141K). But that seems like it would be a lot of work, which defeats the purpose of my fantasy. Anyway, I think that those numbers were associated with some sort of investment house, rather than a corner bank. Another hit gave numbers that were a lot closer to half a percent (which would net me about $18K per month, still a respectable sum).

So, what are the numbers for interest on a checking account? Do they have an upper limit on what I can earn? And for that matter, what do plain passbook accounts earn these days? I could skim my monthly interest out of a savings account, pay the taxes and put it into a non-interest bearing checking account, easy. Long as I donít have to do it 1440 times a month, Iím flexible that way.
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  #2  
Old 02-02-2010, 01:43 PM
fiddlesticks fiddlesticks is offline
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Well for one thing, FDIC only insures deposits per account up to $250,000 (recently upped from $100,000), so that's one big reason to not deposit that $72M in a single FDIC insured bank account.

Though I'm sure the bank would be thrilled...
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Old 02-02-2010, 02:26 PM
Doug Bowe Doug Bowe is offline
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I have an interest bearing checking account and it's paying out a whopping one tenth of a percent. Interest rates are historically low right now. A bank that offers a much higher interest rate than others may be waving a big red flag.

And fittlesticks is correct about depositing more than $250,000 in one bank. If you're going to turn over your cash you want it insured. Here's a possible method:

http://www.cdars.com/

Ask for the bank cdars desk. You'll end up with $50,000,000 (that's the limit) of individual Certificates of Deposit at a bunch of different banks and every one of 'em will be covered by FDIC insurance. Because you used the cdars program you get one statement.
You might want to ladder the CD's out to different periods of maturity.
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Old 02-02-2010, 02:36 PM
YamatoTwinkie YamatoTwinkie is offline
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Originally Posted by kaylasdad99 View Post
One of the first hits on that spoke of a 3.93% rate, which strikes me as really good.
Good luck with that one. I think you're lucky to break 1.5% APR on a savings account in this environment.
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Old 02-02-2010, 02:47 PM
yabob yabob is offline
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CD ladders would be better than a savings account, which would be better than a checking account.

There are other vehicles which are fairly low risk (not FDIC insured, though), and will provide much better return than those. At the kinds of income you are talking about, some of it in muni bonds or US treasuries (if you live in a state with income tax) may be attractive for the tax sheltered features, which give them a higher effective rate after taxes.
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Old 02-02-2010, 03:00 PM
pulykamell pulykamell is offline
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Originally Posted by kaylasdad99 View Post
One of the first hits on that spoke of a 3.93% rate, which strikes me as really good.
The best rate I could find on bankrate.com is 0.75% APY on an interest-bearing checking account. If Charles Schwab is to be believed, the national average for interest-bearing checking accounts is half of this. Bankrate.com seems to put the average more at 0.59%. I've never seen a checking account with more than 1% interest in the last few years. Even savings accounts with 1.50% APR are advertised often as "high yield." A checking account is among the worst places you could put your money if you want to live off investment interest.

Last edited by pulykamell; 02-02-2010 at 03:00 PM..
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Old 02-02-2010, 03:07 PM
Snickers Snickers is offline
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Yeah, we got a 1099 from US Bank for our interest last year. Granted, we don't have a huge amount in there - it's our general, everyday account for bill paying and general living stuff, and as such usually has a balance of $3000 - $5000. We earned $14 and change from it.

I hope we can afford the taxes on it!
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Old 02-02-2010, 03:23 PM
fluiddruid fluiddruid is offline
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Quote:
Originally Posted by YamatoTwinkie View Post
Good luck with that one. I think you're lucky to break 1.5% APR on a savings account in this environment.
Rewards checking often pays more (you have to use your debit card though).

My bank's is 4%; two years ago it was 5.5%. Over 25k, it's 1%.

Last edited by fluiddruid; 02-02-2010 at 03:24 PM..
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Old 02-02-2010, 04:36 PM
Markxxx Markxxx is offline
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Remember when Mr Drysdale of the "Beverly Hillbillies" was made fun of because he gave 4.5% instead of the "normal" 5%
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Old 02-02-2010, 04:39 PM
silenus silenus is online now
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I'd also question the 50% value of the cash option. IIRC, the figure usually given is more along the lines of 35% of the total. So your $144 million would end up as $50 million, give or take a mil.
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Old 02-02-2010, 05:53 PM
kferr kferr is offline
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Move to the UK and play the lottery here. A bit of tax is taken from every ticket sold so the winnings are entirely tax free!
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Old 02-02-2010, 06:14 PM
Canadjun Canadjun is offline
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Originally Posted by kferr View Post
Move to the UK and play the lottery here. A bit of tax is taken from every ticket sold so the winnings are entirely tax free!
Canada is closer. Our lotteries are tax free as well.
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Old 02-02-2010, 06:51 PM
dracoi dracoi is offline
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Trust me, if you win the lottery and have $72 million to put into a bank, you want to take the check directly to a financial advisor/investment manager let them take care of it for you. You'll probably pay about $1 million of it to them, but that will be the best investment you ever made.

But to address the specific question: I think the limits are put there by each bank. The interest rates and investment options they provide have a lot to do with how they manage their lending and deposit requirements. They don't want $72 million in a checking account where it might be taken out overnight, because then they'd have to compensate to keep up with their deposit requirements. For sums of money that are very large, they're going to require something like a CD where they can at least penalize you for taking it out early.

Last edited by dracoi; 02-02-2010 at 06:53 PM..
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Old 02-02-2010, 07:04 PM
Markxxx Markxxx is offline
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Originally Posted by dracoi View Post
Trust me, if you win the lottery and have $72 million to put into a bank, you want to take the check directly to a financial advisor/investment manager let them take care of it for you. You'll probably pay about $1 million of it to them, but that will be the best investment you ever made.
Unless of course they run off with your money and leave you broke, oh sure they go to jail for a few years, while you're broke, then they get out and spend the money they stole from you and laundered
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Old 02-03-2010, 06:11 AM
Chez Guevara Chez Guevara is offline
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Originally Posted by kferr View Post
Move to the UK and play the lottery here. A bit of tax is taken from every ticket sold so the winnings are entirely tax free!
True enough, but for the avoidance of doubt the income from any interest on said winnings is taxable at 40 percent, increasing to 50 percent on amounts in excess of £150K per annum for the tax year 2010/2011.
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Old 02-03-2010, 08:10 AM
MarcusF MarcusF is offline
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Originally Posted by Chez Guevara View Post
True enough, but for the avoidance of doubt the income from any interest on said winnings is taxable at 40 percent, increasing to 50 percent on amounts in excess of £150K per annum for the tax year 2010/2011.
Umm! I'm pretty sure if I've got the GBP 85 million from the Euro lottery on Friday the nice financial advisor I consult will find a way of minimising my tax liability to keep it under 50%
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  #17  
Old 02-04-2010, 06:21 PM
LonghornDave LonghornDave is offline
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I deposit large dollar amounts and use many different banks. By large I mean anywhere from as low as $5 million to as high as $50 million. These banks include Chase, U.S. Bank, Compass, Regions, Wells Fargo, Comerica, as well as a few smaller regional banks. The funds are those of a corporation, so it can't be a checking account because those are not permitted to pay interest. Therefore, for amounts that would be in actual deposits of the bank (not some sort of investment account), you are basically left with CDs and money market deposit accounts.

The rates you see quoted in places like bankrate.com or even on the banks' websites are for smaller dollar amount accounts. The more you have on deposit, the lower the rate. In general the better off the bank, the lower the interest rate. For example, Chase would pay essentially nothing on a money market account: maybe .05%. A smaller regional bank might pay as much as around 1.50%. If you can get around .50%, you are doing pretty good in this interest rate environment.
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