Rosemary W. from Hilton Head, SC asks: Hi Mitch, with all of the problems in banking happening right now, I’m wondering if you could give an overview of how deposits, investments, and other cash are protected at banks. Thank you for your time.
Mitch’s Response:
Thanks for sending your question – let me start with banks and FDIC insurance.
As many readers are probably aware, the FDIC will insure up to $250,000 of your cash held in an account at a bank. What is less widely known, however, is that there are several ways to increase this level of insurance for a household.1
First off, a joint checking account for a married couple is eligible for $500,000 of protection, and then each person can also have their separate checking account with $250,000 of insurance. So, the napkin math here tells us a married couple can have $1,000,000 of cash insured at a single bank without having to do anything complex – just open a joint checking and two individual checking accounts.
Are You Letting Investor Bias Affect Your Investments?
Investors that make decisions based off data, not emotions, almost always perform better than those who let emotional or cognitive biases impact their investment decisions.
The first step to overcoming these biases is to be aware of them, and we can help with our free guide, Three Steps to Overcoming Investment Behavioral Bias. You’ll learn how to:
- Recognize your own investing biases
- Re-examine your portfolio
- Take key steps to avoid bias
If you have $500,000 or more to invest, download our guide Three Steps to Overcoming Investment Behavioral Bias.2 Simply click on the link below to get your copy today!
Download Zacks Guide, Three Steps to Overcoming Investment Behavioral Bias2
For single people with more than $250,000 or married couples with more than $1M, another way to increase your FDIC coverage is to have your bank use deposit swapping networks to separate large deposits into amounts below the FDIC limit, held at multiple banks. There are networks like IntraFI Network LLC that can manage deposits across multiple banks of up to $150M. You the customer would only deal with your primary bank, while your money is ‘swapped’ across multiple banks.
Readers may also not want to rule out simply opening multiple accounts at multiple banks, though doing so could be onerous and present challenges for managing multiple relationships. But, technically speaking, a person could open 200 accounts at 200 different banks and ultimately have $50M in FDIC-insured deposits. Nothing stopping you from doing that.
On the investment and retirement account side, FDIC insurance does not apply to securities or cash balances at custodians, but there is protection offered via the Securities Investor Protection Corp. (SIPC). SIPC covers up to $500,000 per account which includes $250,000 in cash, but it should be noted that the $500,000 is for registered securities like stocks, bonds, ETFs, etc.
Custodians generally do not face the same risks as banks when it comes to deposit flight, and their main function is to safe keep financial assets while also providing trading and reporting services. They are not generally engaged in the same practices as banks in terms of providing payment and loan services. Regarding your investments in stocks and ETFs and so on, if a brokerage does fail then it is likely that SPIC will intervene to have your assets transferred to a different brokerage firm. One important item to note regarding SIPC insurance, however, is that for investments that are not registered, like some annuities and alternative investments, there would be no coverage.
It’s good to be informed about investing opportunities, like the ones above, before making financial decisions. However, some investors tend to make decisions based on emotions.
I recommend making decisions based on data, instead of emotional attachment. The best way to overcome investor bias is to understand its impact on your decision-making process. That’s why I have prepared this educational guide, Three Steps to Overcoming Investment Behavioral Bias3, that can help you become aware of your own biases, and overcome them. You’ll learn:
- The two main types of biases that affect investors: Cognitive and Emotional
- Specific examples of biased decision-making that can negatively impact your portfolio
- Three essential actions you can take to counteract the natural investor tendencies toward bias
If you have $500,000 or more to invest and are ready to learn more, click on the link below to get your copy today!
Disclosure
1 Wall Street Journal. March 15, 2023. https://www.wsj.com/articles/protect-money-bank-collapse-fdic-387df56
2 Zacks Investment Management reserves the right to amend the terms or rescind the free Three Steps to Overcoming Investment Behavioral Bias offer at any time and for any reason at its discretion.
3 Zacks Investment Management reserves the right to amend the terms or rescind the free Three Steps to Overcoming Investment Behavioral Bias offer at any time and for any reason at its discretion.
DISCLOSURE
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.
Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts as an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.
This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.
Any projections, targets, or estimates in this report are forward looking statements and are based on the firm’s research, analysis, and assumptions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed in this presentation.
Certain economic and market information contained herein has been obtained from published sources prepared by other parties. Zacks Investment Management does not assume any responsibility for the accuracy or completeness of such information. Further, no third party has assumed responsibility for independently verifying the information contained herein and accordingly no such persons make any representations with respect to the accuracy, completeness or reasonableness of the information provided herein. Unless otherwise indicated, market analysis and conclusions are based upon opinions or assumptions that Zacks Investment Management considers to be reasonable.
Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein.
It is not possible to invest directly in an index. Investors pursuing a strategy similar to an index may experience higher or lower returns, which will be reduced by fees and expenses.
The ICE U.S. Dollar Index measures the value of the U.S. Dollar against a basket of currencies of the top six trading partners of the United States, as measured in 1973: the Euro zone, Japan, the United Kingdom, Canada, Sweden, and Switzerland. An investor cannot directly invest in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.