Government entities are permitted to invest in Certificates of Deposit (CDs) that are “fully insured” by the Federal Deposit Insurance Corporation (FDIC). Each depositor has up to $250,000 of FDIC coverage at any individual bank, so most government entities purchase CDs in amounts just less than the FDIC limit.
Often, government entities will use brokers, banks and certificate-of-deposit placement services to purchase CDs. Therefore, a government entity must set up a system to monitor all CDs purchased on its behalf to ensure they do not exceed the FDIC limit at any given bank. Purchasing multiple CDs that exceed the FDIC limit from a bank that fails will result in losses to the government entity.
Date this Avoiding Pitfall was most recently published: 02/24/2017