By Lee Sherman
The Federal Deposit Insurance Corp. insures most bank deposits up to $250,000 but for wealthy investors that may not be enough. If you’ve just sold a home or a business, your business is profitable, you’ve come into an inheritance, or you have a trust, you may want to know about ways to get around this limit.
The FDIC provides a more detailed explanation of how it insures deposit accounts here. If you want to insure more than $250,000, there are a few things you can do.
- Use separate accounts. Because the limit applies only to individual accounts, you and your spouse can each deposit up to the limit so long as the accounts are separate savings accounts. In addition, it is possible to open up accounts at more than one bank. Lastly, you can deposit some money in a personal account and some in a business account. Because they are in different ownership categories, you will be fully insured for each account.
- Open a living trust. With a living trust, the calculation could work in your favor, because FDIC coverage is on a per beneficiary, per grantor basis. Imagine a family of four. Each parent can set up a trust for both children—extending total coverage to $2 million. To find out whether you are fully insured, you can use the FDIC Electronic Deposit Insurance Estimator.
- Use a network. Networks, such as the Certificate of Deposit Account Registry Service (CDARS) allow depositors to insure large sums by dividing big deposits into smaller amounts that can be distributed among various CD or money market accounts at FDIC-insured banks. You could do this yourself of course but using a network to spread your money around can save you a lot of trouble for the price of a small fee. Most financial advisors are familiar with networks like CDARS.
- Open a brokerage deposit account. The Securities Investor Protection Corp. insures securities held in brokerage accounts up to $500,000 with a $250,000 cash limit. You’re protected should the brokerage fail, and, because the account is linked to a brokerage, you can execute trades whenever you want.
- Join a credit union. If you’ve maxed out on the amount of money that can be insured by the FDIC or have specific types of retirement accounts, consider using a credit union in addition to a regular bank. Credit unions are insured by The National Credit Union Administration Share Insurance Fund which has its own restrictions that are similar to the FDIC but not entirely the same. Individual accounts can be insured up to $250,000 and there is additional, separate protection available for IRA and Keogh retirement accounts and revocable and irrevocable trust accounts, again with a $250,000 limit.
For high net worth individuals, it makes sense to periodically review where you are stashing your cash. If you have more than $250,000 deposited in an account at an FDIC-insured bank, you may not be fully covered. Bank failures are extremely rare but they do happen. If you have a lot of cash consider putting some of it into multiple accounts for greater protection.
Lee Sherman is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. Lee is an experienced journalist and editor with over 30 years of expertise with a significant history of writing in the personal finance and technology arenas.
