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How to Insure a Bundle

For years the Jean-François Millet La Porteuse d'eau graced your mantel, until the decorator pointed out that it clashed with the new upholstery palette. So off it went to eBay, where a collector with wall room over the couch was so thrilled with Millet's zesty burnt umbers, bold turquoise strokes, and softly graying-green landscape that he bid it up to $385,000.

What to do with the cash from the sale until you find that perfect post-Schnabel Ironic Era portrait to put over the fireplace?

You can insure the Millet. You can acquire adequate coverage for the walls it hangs on. But when it comes to protecting the money you get for its sale, most banks cut off coverage at $100,000.

There are, however, a few work-arounds to the Federal Deposit Insurance Corporation's (FDIC) limits, which insure $100,000 per depositor, per insured bank.

1. You can deposit three $100,000 chunks and the remaining $85,000 in four separate FDIC-insured banks. The conveniences of online banking makes this less of a hassle to do than in years past when you had to spend your Saturday visiting four bricks-and-mortar branches. Still, when it comes to statements, paying taxes on the interest earned, and general month-to-month tracking, it's not the most streamlined option.

2. You could stay at one bank but split up the money into different legal ownership categories that are separately insured. Those options include:

  • Single accounts
  • Self-directed retirement accounts (your basic IRA)
  • Joint accounts
  • Revocable trust accounts

While you now have to find only one parking space, you'll still have to modify your home filing system to accommodate four separate accounts.

3. A final option is Certificate of Deposit Account Registry Service (CDARS), a convenience service whereby a middleman plays matchmaker with your money and various banks that participate in the service. Management-wise, the transaction is seamless for the consumer. Your deposits are consolidated on a single statement, and come tax time there's only one 1099 form to file.

Like most convenience services, there are some shortcomings. For instance, only a certain number of banks participate in CDARS programs, so you sacrifice your freedom to rate-shop within the universe of banks. And the service is not free: Most charge an initial fee to set up an account, plus additional fees each time you make a transaction. The transaction fees may not be explicit, but you'll probably recognize them in the lower interest rate you're offered on your funds.

Use the FDIC's Electronic Deposit Insurance Estimator (EDIE) to estimate what coverage you might need for your Millet proceeds, and then weigh convenience, coverage, and costs to find a home for that cash.

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