Protection for Your Money
Headlines about bank collapses have gripped the news. The Silicon Valley Bank failure has caused many of us to wonder about the safety of our money at our own banks. How can you protect your money from a possible bank collapse?
Three agencies that offer protection for our wealth are Federal Deposit Insurance Corporation (FDIC) for bank accounts, National Credit Union Administration (NCUA) for credit union accounts, and Securities Investor Protection Corporation (SIPC) for brokerage accounts. These protections guard against losses caused by business failures of the bank, credit union, or brokerage firm.
Three Types of Protection for Your Wealth
Federal Deposit Insurance Corporation (FDIC)
The FDIC is an independent agency of the U.S. government and was established in 1933 after a series of bank failures during the Great Depression. The stock market crash of 1929 triggered over 9,000 bank failures by March 1933, ushering in the worst economic depression in modern history.
In the 1930s, the FDIC helped stop the “run on banks” by insuring bank accounts up to $2,500. Currently, the FDIC insures bank accounts up to $250,000 at any U.S. bank. FDIC insurance is backed by the “full faith and credit of the U.S. government.”
How does the FDIC (Federal Deposit Insurance Corporation) work? The amount of FDIC coverage depends on the FDIC ownership category. These ownership categories include single accounts, joint accounts, certain retirement accounts and employee benefit plan accounts, trust accounts, business accounts and government accounts. All single accounts owned by the same person at the same bank are added together and insured up to $250,000. A married couple is eligible for $500,000 protection on a joint bank account and $250,000 for each individual account, for a total of $1 million in coverage at a single bank.
FDIC protection covers checking, savings, money market and NOW accounts, CDs, cashiers checks and money orders. U.S. Treasury bills, bonds or notes held in banks are not included as they are backed by the U.S. government. Some of the other financial products not included under FDIC protection are stocks, mutual funds, crypto assets, life insurance policies, annuities, and safe deposit boxes and contents. Learn more at https://www.fdic.gov/resources/deposit-insurance/financial-products-insured/.
National Credit Union Administration (NCUA)
Credit Unions are nonprofit institutions owned by account holders, known as members. A community or organization often formed these cooperatives to reduce costs. The NCUA was formed in 1970 by the U.S. government to regulate federal credit unions. NCUA manages the Nation Credit Union Share Insurance Fund offering the same level of protection as the FDIC― $250,000 in coverage for single ownership accounts. However, the credit union must be federally chartered to receive this protection.
NCUA coverage is similar to FDIC coverage regarding amount covered, ownership categories and limitations. For more precise information, visit the NCUA website here: https://ncua.gov/.
Securities Investor Protection Corporation (SIPC)
Most investment and retirement accounts are not FDIC-insured, but if the brokerage firm fails, your money may be protected by the Securities Investor Protection Corporation (SIPC).
The SIPC was also created in 1970 through the Securities Investor Protection Act (SIPA). Although established under federal law, SIPC is not a government agency. The SIPC is a nonprofit membership corporation under SIPA, with the purpose of restoring cash and securities up to $500,000 (including $250,000 limit for cash) if the brokerage firm goes bankrupt or is in financial trouble. To qualify, the brokerage firm must be a SIPC member, and conditions must warrant that the SIPC become involved. Protections do not extend for market drops, investment performance or fraud issues.
SIPC covers securities in the accounts of member firms. These securities include stocks, bonds, CDs, Treasuries, and mutual funds, money market mutual funds. Commodities futures contracts, foreign exchange trades or fixed annuities are not covered. Learn more at https://www.sipc.org/for-investors/what-sipc-protects.
You can open multiple accounts at the same brokerage firm. Instead of “ownership categories,” these are called “separate capacities.” Some of these capacities include an individual account, joint account, account for a corporation, account for a trust created under state law, individual retirement account, ROTH individual retirement account, an account held by an executor for an estate, and an account held by a guardian for a ward or minor. To learn more, https://www.sipc.org/for-investors/investors-with-multiple-accounts. 
Strategies to Safeguard Your Accounts
Banks are safer today than in the past because the FDIC and other regulators require banks to hold more reserves. However, if you have more than $250,000 in liquid assets, you may wish to consider these strategies as safeguard measures:
Open Multiple Accounts
The coverage limit has grown periodically over the years. It was $100,000 in 2008 and is now $250,000 per person. An individual can have insurance coverage for an unlimited number of accounts if they are at different institutions.
It is also possible to have multiple accounts at the same institution. However, they must be a different category of account. For instance, if an individual has two savings accounts or a checking and a savings account, these will be added together when considering the $250,000 coverage. If one account is a savings account and the other is an IRA account, these will be viewed separately and insured up to $250,000 each. Opening multiple types of accounts may be helpful to ensure appropriate coverage.
Adding Account Beneficiaries
If you designate a beneficiary to inherit funds after your death (POD), each unique beneficiary will generally be covered by insurance up to $250,000. For example, if you designate three beneficiaries to inherit your money, each will be insured up to $250,000 for a total of $750,000.
Revocable trusts with an individual grantor are also covered. The FDIC will multiply the number of beneficiaries by $250,000. If there are more than six beneficiaries, additional rules will apply. Please check with your financial advisor and the FDIC website at https://www.fdic.gov/resources/deposit-insurance/trust-accounts/.
For joint revocable trusts, each grantor’s $250,000 coverage is multiplied by the number of beneficiaries. For instance, if a couple has a joint trust with two beneficiaries, the total amount of coverage would be $1,000,000 (2 beneficiaries x $250,000 plus $250,000 for each spouse of the couple).
If you choose the strategy of opening multiple accounts, this may get complicated to manage. If managing multiple accounts gets daunting, the bank can do it for you. Deposit swapping networks such as IntraFi Network, LLC work with various banks to divide large deposits into smaller deposits below the federal insurance limit. They can protect balances up to $150 million.
Protection for Business Owners
FDIC protection depends on the business structure. Accounts owned by a corporation such as LLCs and S Corps or a Partnership are considered a single entity by the FDIC and insured up to $250,000, regardless of the number of business owners. These are separate from the individual’s account.
A business owner that is a sole proprietor is treated as one entity for both the business account and the individual account which are aggregated and covered up to $250,000.
We hope that we have answered some of the basic questions about protecting your money. If you have more questions about your specific accounts or would like more information for your situation, please consult your financial advisor.
If you are interested in learning about how FDIC coverage will apply at your bank, consult the Electronic Deposit Insurance Estimator (EDIE) at this link https://edie.fdic.gov/calculator.html. You can enter your personal, business, and government accounts for a specific bank and a report will be generated. You can run this for each of your banks.
1. Stammers, R. (March 15, 2023). What is the FDIC? Investopedia. https://www.investopedia.com/articles/economics/09/fdic-history.asp
2. FDIC: Deposit Insurance FAQs, https://www.fdic.gov/resources/deposit-insurance/faq/index.html
3. Moise, I. (March 15, 2023). How to Protect Your Money From Bank Collapse. The Wall Street Journal. https://www.wsj.com/articles/protect-money-bank-collapse-fdic-387df56
4. Roos, D. How Credit Unions Work. How Stuff Works. https://money.howstuffworks.com/personal-finance/banking/credit-union.htm#pt1
5. SIPC: History and Track Record. https://www.sipc.org/about-sipc/history
6. SIPC: Investors with Multiple Accounts. https://www.sipc.org/for-investors/investors-with-multiple-accounts
7. Moise, I. (March 15, 2023). How to Protect Your Money From Bank Collapse. The Wall Street Journal. https://www.wsj.com/articles/protect-money-bank-collapse-fdic-387df56
9. Tudor, S. (August 2019). What Protections are Available for Clients Money? HKFS Planning Strategies.
10. Moise, I. (March 15, 2023). How to Protect Your Money From Bank Collapse. The Wall Street Journal. https://www.wsj.com/articles/protect-money-bank-collapse-fdic-387df56
The information provided is for educational purposes only and is not intended to be, and should not be construed as, investment, legal or tax advice. Allodium makes no warranties with regard to the information or results obtained by its use and disclaim any liability arising out of your use of or reliance on the information. It should not be construed as an offer, solicitation or recommendation to make an investment. The information is subject to change and, although based upon information that Allodium considers reliable, is not guaranteed as to accuracy or completeness. Past performance is not a guarantee or a predictor of future results of either the indices or any particular investment.