Zacks Investment Management

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.

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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
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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.

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