How to protect your cash
March 15, 2023
Following the Silicon Valley Bank (SVB) collapse last week, many are worried about the safety of their money. There are many approaches they can take to protect your cash deposits.
The federal government has bailed out SVB and guaranteed all deposits above the FDIC limit of $250,000 per account, but that doesn’t stop it from doing it again with other banks.
Let’s review and summarize how the Federal Deposit Insurance Corporation (FDIC) insurance works and what other options you have.
In the United States, personal bank accounts with balances up to $250,000 are insured. This increase in coverage is easy, as each type of account at each bank has $250,000 of coverage. As an example, a couple would be entitled to protection for her $500,000 for joint accounts and her $250,000 for each individual account, resulting in a total of $1 million in coverage at one bank. .
Determining the total coverage of a trust account can be more complicated, as the designation of beneficiaries must be examined.
The FDIC also has a very handy calculator FDIC’s Electronic Deposit Insurance Quote Tool (EDIE)It helps consumers understand how deposit insurance rules and restrictions apply to a particular group of deposit accounts at a particular bank.
By entering information about their deposit accounts into the EDIE tool, users can see how their deposits are insured, what (if any) they exceed their coverage limits, and what steps they can take to maximize their insurance coverage. You can generate reports that provide information about
This report can be printed for future reference. It can also be used by users to make informed decisions about how to structure their deposits to ensure maximum insurance coverage.
Is my retirement account (such as an IRA, 401k, or investment brokerage) insured?
Securities Investor Protection Corporation (SIPC)) is a non-profit organization created by Congress to protect clients of SIPC member brokerage firms against loss of cash and securities in the event of financial or bankruptcy of the firm.
SIPC offers up to $500,000 in protection per customer. This includes his $250,000 limit on cash. This means that if a brokerage company goes bankrupt and customers lose their cash and securities, SIPC will try to recover the assets and return them to the customer up to the limit of compensation.
It is important to note that SIPC protection does not cover losses resulting from market volatility, fraud, or poor investment decisions. Certain types of investments are also excluded, such as commodities and futures contracts. You should always review their account agreements and understand the risks associated with their investments.
One thing to remember is that there are restrictions on multiple account coverage, similar to FDIC restrictions. SIPC calls this the “separation capacity”. For example, individual, joint account, trust account, etc. Accounts held in the same capacity are combined for SIPC protection limits.
Many banks and brokerage firms also offer “excess SIPC coverage” beyond the SIPC limits. This type of coverage is provided by private insurance companies, not by SIPC. Exact eligibility will not be determined until SIPC limits expire. If you have any questions about extra SIPC insurance, please contact your brokerage firm.
Below are the most typical brokerage firms with which our clients have accounts.
TD Ameritrade Excess SIPC Limit
Vanguard Excess SPIC Restrictions – From Vanguard site – ” Vanguard funds not held in brokerage accounts are held by The Vanguard Group, Inc. and are not protected by SIPC. Brokerage assets are held by Vanguard Brokerage Services, a division of Vanguard Marketing Corporation. Finla and SIPC.
To avoid this, we recommend converting or transferring your funds to a brokerage account.
What if I have a cash account with a credit union?
Credit unions are like banks, National Credit Union Administration (NCUA) Up to $250,000 per account. This means that if the credit union fails, your deposit will be protected up to that amount. You can check if your credit union has his NCUA insurance by using the “Credit Union Locator” tool on the NCUA website and looking for his blue NCUA logo.
FDIC Coverage Estimates Similar to the EDIE, credit union members can estimate “stock insurance” coverage. Stock insurance quote.
Where should I store my cash?
cash management account
A cash management account (CMA) is a type of financial account that combines the functionality of a checking account and a savings account into one account. They are typically offered through non-bank financial institutions or brokerage firms.
CMA offers several benefits, including the ability to easily access money through checks, debit cards, and wire transfers, while earning interest on your cash balance. It can also provide a single account for managing cash and investments, allowing you to quickly and easily move money between investment and cash accounts.
In addition, many CMAs offer FDIC insurance for cash balances up to certain limits. This allows you to further protect your funds. Most CMAs can offer higher FDIC insurance limits compared to standard bank accounts.
sauce: www.kitces.com
Cash management accounts offer a secure way to increase your savings by offering high yielding interest rates on your deposit funds. In a CMA, your money is held in accounts at your financial institution’s partner banks, and deposits are often split between multiple partner banks to further spread and reduce risk.
Below are providers of cash management accounts and current interest rates.
both Schwab and TD Ameritrade offers cash management accounts, but current interest rates are much lower.
Money Market Accounts and Money Market Funds
Money market accounts and money market funds, both with the word “money market” in their names and used for short-term savings and investment purposes, are completely different financial instruments with their own unique features and risks.
a money market account A type of savings account usually offered by a bank or credit union. They typically offer higher interest rates than traditional savings accounts, but they also require a higher minimum balance. Money market accounts are insured by the FDIC up to $250,000 per account. This means your money is protected even if your bank or credit union fails. Money Market accounts allow you to withdraw money at any time, but may limit the number of withdrawals per month.
on the other hand, money market fund A type of investment fund that invests in short-term, low-risk bonds such as treasury bills, commercial paper, and certificates of deposit. Money market funds are typically offered by investment firms and can be purchased through a broker or directly from the fund. For example, Vanguard, Schwab, and Fidelity. Unlike a money market account, a money market fund is not guaranteed by his FDIC and is not guaranteed to maintain a stable net asset value (NAV). His NAV of money market funds can fluctuate based on the performance of the underlying securities and there is a risk of losing funds if the fund performs poorly.
open multiple accounts
Keep in mind that opening multiple accounts with different banks can increase your FDIC coverage or stock insurance with a credit union, but it may not always be the most practical or convenient option for everyone. It is important to In addition to the added complexity of managing multiple accounts, there may be other costs associated with maintaining these accounts, such as fees and minimum balance requirements.
“Deposit Swap”- source wsj.com
A more sophisticated way of managing relationships between multiple bank accounts is through deposit exchange services. Register for services such as Intraphi We also cover millions of dollars of FDIC insurance through our network of banks participating in the ICS and CDARS programs. Here’s how it works.
Your investment strategy should be aligned with your financial goals and time horizon. Short-term investments such as cash and cash equivalents are typically used to meet immediate needs or act as a safety net in an emergency. However, if your financial goals have a long-term view, it may be better to consider investing in stocks, bonds, ETFs, mutual funds, or real estate.
These types of investments offer higher return potential in the long run, but also come with greater risk. Before investing, it is important to understand your risk tolerance, investment objectives and time horizon. You should also consider seeking advice from a financial planner who can help you develop a personalized investment plan based on your goals and risk profile.
Ultimately, the key to a successful investment strategy is finding the right balance of risk and reward and staying committed to your long-term goals.