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How to Protect Your Money from a Bank Collapse: Source WSJ

Skittish savers can protect their deposits in many different ways if they are uneasy about the safety of their money after the failure of Silicon Valley Bank.

Federal authorities rescued SVB’s SIVB -60.41%decrease; red down pointing triangle customers Sunday, guaranteeing all deposits including those in excess of the $250,000 limit normally covered by the Federal Deposit Insurance Corp., or FDIC.

But that maneuver has done little to quell concern among savers, say financial advisers. These advisers say that those with large deposits should take this moment to make sure their money is safe from future bank failures.

First, it pays to understand how FDIC coverage works and to tally up exactly how much money you have in your accounts and how to make the most of these protections. Most investment and retirement-account assets aren’t FDIC-insured, but in the event your brokerage firm fails, your money may be protected by the Securities Investor Protection Corp. (SIPC).

At any U.S. bank, accounts with balances up to $250,000 a person are protected. It is easy to make that $250,000 multiply, however, given there is coverage of $250,000 for each type of account at each bank. A married couple, for example, is eligible for $500,000 protection on a joint bank account and $250,000 for each of their individual accounts, for a total of $1 million in coverage at a single bank.

Today, banks are much safer for consumers because of the FDIC and other financial regulations that require banks to hold more reserves, but it is still important that savers understand all of the risks, said Greg McBride, chief financial analyst at Bankrate.

“Leaving money in a bank account in excess of the Federal Deposit Insurance limit is like driving around without your seat belt. You’re inviting a disaster,” he said.

Before the deal was announced, Silicon Valley Bank customers risked losing up to $150 billion since many accounts held balances in excess of the $250,000 limit. If you have more than $250,000 in liquid assets, here are strategies to consider:

Open multiple accounts

The FDIC was established 90 years ago to restore trust in the financial system after customers lost money in a series of bank failures during the Great Depression. The original coverage limit of $2,500 has been increased periodically because of inflation and periods of financial strife, mostly recently in 2008 when the coverage was raised from $100,000 to the current limit.

The most obvious way to boost FDIC coverage is to open multiple accounts. Checking and savings accounts owned by the same person aren’t considered separate categories for FDIC purposes, but joint and individual accounts are insured separately.

In addition to joint and individual accounts each getting $250,000 protection per person, families can also increase coverage by opening custodial accounts for their children. Each would be eligible for another $250,000 in coverage. The FDIC has a calculator to estimate your total coverage.

There are no limits to the number of accounts an individual can have covered, if they are held by different institutions. Customers could theoretically open 200 accounts at 200 different banks to get $50 million of coverage. Of course, managing relationships with many different banks and juggling the corresponding statements can get burdensome.

Add beneficiaries to your accounts

Designating specific people, or nonprofit organizations to inherit funds after the account owner’s death is another way to increase protection. FDIC insurance generally will cover up to $250,000 in deposits for each unique beneficiary. For example, a trust account with five beneficiaries would be insured up to $1.25 million.

There are no limits to the amount of beneficiaries you can have insured, but determining coverage amounts for trusts where funds that aren’t divided up equally or have conditional clauses can be complicated and require the advice of a financial adviser

Deposit swapping

One way to manage the multiple accounts necessary to increase FDIC coverage is to have your bank do it for you. Deposit swapping networks such as IntraFi Network LLC work with multiple banks to separate large deposits into amounts below the federal insurance limit and can protect balances up to $150 million. Using a network allows customers to get the insurance benefit of having multiple banks while dealing with only one bank.

Customers can choose to keep the money in checking accounts, money-market accounts or certificates of deposits depending on their liquidity needs. Customers don’t have to pay a fee for the service but might have to accept a slightly lower interest rate for the convenience.

Brokerages such as Fidelity Investments can also join with FDIC-insured banks to increase the coverage they offer to clients in cash-management accounts. For example, Fidelity cash-management accounts can offer more than $1 million in protection.

Credit unions

Credit unions are nonprofit financial institutions that are an alternative to commercial banks. These accounts aren’t FDIC insured, but they have their own form of federally backed deposit coverage through the National Credit Union Share Insurance Fund, with the same $250,000 limit.


Though U.S. Treasurys aren’t covered by FDIC insurance, they are backed by the full faith and credit of the federal government. In other words, buying U.S. bonds is a low-risk alternative to stashing money in a bank.

Unless you are preparing to make a very large purchase, such as a house, there is no reason for most people to keep more than $250,000 in cash on hand, said Eric Sterner, chief investment officer at Apollon Wealth Management.

“I would really just encourage clients to invest that money, especially in fixed-income markets,” Mr. Sterner said. The Federal Reserve has raised interest rates several times over the last year creating attractive, low-risk opportunities for even the most conservative investors, he added.

By Imani Moise

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