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How to Insure Your Money When You’re Banking over $250K (2022)

236 points by O__________O 4y ago

deleted 4y ago
[deleted]
t344344 4y ago
> per institution Some banks are just brands, and use bank license of their mother. In that case both accounts share $250k limit. So be careful that insurance does not overlap.
- O__________O 4y ago
  True, though there are at least 3000 banking institutions that exist that this doesn’t apply to: https://news.ycombinator.com/item?id=35110141 https://news.ycombinator.com/item?id=35110141
m3kw9 4y ago
Maybe buying some low risk, good liquidity assets so you don’t keep so much cash in the bank will work better than doing all this
justeleblanc 4y ago
If I had $250k sitting like a duck in my bank account, I don't think I would take my financial advice from random websites. Sorry, but I just don't understand what the target audience of this is.
- pclmulqdq 4y ago
  This reads like an ad for MaxSafe.
  - mousetree 4y ago
    Most likely is. That’s pretty much Nerdwallet’s business.
- ChancyChance 4y ago
  I found it useful. If you don't have any loans, make a lot a money, have no kids or expensive hobbies, and you already are maxing out your 401K, it just sorta piles up over the years. It's nice to read something like this once and a while since I don't have anyone to ask. Like should I move it from my credit union to my investment account. Is there a difference in insurance between the two?
  - slg 4y ago
    You should do some more research than simply reading whatever is posted on HN or just get a financial advisor because this is a failure in financial planning that is causing you to miss a lot of potential growth. No individual who would miss $250k should have that much sitting as cash in a bank account unless they are planning to buy a house or other large purchase in the next couple of months. That money should be invested somewhere even if it is just all in short term CDs or bonds if you are an extremely risk-averse person.
    - ChancyChance 4y ago
      You're probably right.
    - massysett 4y ago
      It's not exactly "a lot" of potential growth. Yields on short-term investments have been so close to zero over the past several years that I'd argue it has not been worth the trouble to put the money into CDs or bonds. Only lately have yields on these investments been ticking significantly above zero. The extra burden - mental, accounting, tax compliance - of acquiring additional investments is worth something, and taking on that burden for measly returns may not be worthwhile. I'm only talking about short-term investments here. The whole point of short-term investments is that the principal needs to be relatively safe - but with that, the returns are meagre as well. Simply spreading it between multiple banks may be worth it.
      - slg 4y ago
        Spreading your money between multiple banks creates similar mental, accounting, and tax burdens as a simple investment would. Plus my "a lot" comment wasn't specifically connected to short term CDs. If you are going to let money sit for years, short term investments like that are the worst for growth second only to keeping everything in cash. That approach should only be taken by the most risk-averse people or people who need liquidity. Even still, OP is probably missing out on 5-figure potential gains by just doing nothing with over $250k+ for years. "A lot" is relative, but that is decent money that OP is effectively losing.
- baq 4y ago
  If you’re a startup founder working on your tech 120h/week you don’t want to think about your money if you already have it. I see this event as a black swan for startups: some will be wiped out like dinosaurs 65M years ago with their only fault being not aware of the meteor risk. Deal templates will get amended and the next batches will go on as before. Besides I’ll be very surprised if SVB isn’t called JPM by 9 am Monday.
  - dgarrett 4y ago
    > Besides I’ll be very surprised if SVB isn’t called JPM by 9 am Monday. It will be called the Deposit Insurance National Bank of Santa Clara (DINB) on Monday. https://www.fdic.gov/resources/resolutions/bank-failures/failed-bank-list/silicon-valley.html https://www.fdic.gov/resources/resolutions/bank-failures/fai...
    - baq 4y ago
      That happened Friday. SIVB was no more at the time of the first announcement. I believe JPM will buy the husk late Sunday or very early Monday, but Twitter has different opinions. We’ll see.
- sershe 4y ago
  You overestimate the level of financial literacy that people have in tech industry, especially the immigrants... I can say from personal example that I "lost" a ton of money by letting cash just sit there, especially 10-12 years ago (I learned what stock market was, other than in the most abstract way, in 2008). And then when I learned a little bit was I talk to random friends, both immigrant and US-born, I get a feeling that my meager knowledge puts me in a pretty high percentile. Someone who grew up here asked me what CDs are; and just yesterday I was explaining what S&P 500 was ;)
novalis78 4y ago
Buy Bitcoin
- WinstonSmith84 4y ago
  ... and short it at 1x which sounds like an ideal solution. But in fact, you're dependent on the exchange getting insolvent or hacked, etc. Since it's not your keys...
zie 4y ago
Fidelity has a program where they will insure up to 1.2M USD in FDIC insured cash: https://www.fidelity.com/why-fidelity/safeguarding-your-accounts https://www.fidelity.com/why-fidelity/safeguarding-your-acco... Otherwise I'd recommend reading from the source: https://www.fdic.gov/resources/deposit-insurance/ https://www.fdic.gov/resources/deposit-insurance/ as there are lots of weirdness as one should expect from old complicated insurance systems ;) But really, if you have more than $250k in cash, perhaps you should consider lowering your cash amounts. Certainly there are valid reasons to hold that much cash, but in general, most people probably shouldn't. If you put that cash in treasuries(even very short term treasuries so it's very cash like), you get paid interest for holding the bills, where most banks won't pay you much of anything for holding cash and treasuries are backed 100% by the US govt, unlike FDIC's 250k limit.
- O__________O 4y ago
  Lots of banks offer services like these; for example, IntraFi Network Deposits, which is mentioned in the article has more than 3000 members, which is more than 50% of US banks, since there are less than 5000 commercial banks in the US.
- A4ET8a8uTh0 4y ago
  I think this is one of those rare opportunities that I can add something useful to the discussion based on knowledge rather than just my opinion. Some banks are structured in a rather specific way, which allow them to have some rather unique products ( compared to the regular banking that is ). For example, certain IL bank has a fair amount of charters, which effectively allows them to offer deposit product that goes way over 250k ( at its core, it is basically CDARS though ). 2.5m if I remember right based on the amount of charters. << But really, if you have more than $250k in cash, perhaps you should consider lowering your cash amounts. Certainly there are valid reasons to hold that much cash, but in general, most people probably shouldn't. I This argument has been going on forever and will likely continue for as long as human race exists. There are reasons one should and shouldn't do this, but the reality is that it will heavily depend on individual situation and, I assume, such a person will be sensible enough to ask someone/s that can appropriately advise whether it makes sense for that individual case.
rcme 4y ago
Number 5 is a pretty good deal. You can buy CDs from other banks without opening an account there. The CDs have your typical duration, from one month to multiple years. Each CD is FDIC insured up to the $250K limit. So not only do you get a decent yield on your money, it's FDIC insured as long as you spread the CDs across multiple banks.
- fullstop 4y ago
  Just to clarify here, each CD is FDIC insured to $250K if it's the only account you have at that bank. see: https://www.fdic.gov/resources/deposit-insurance/brochures/documents/your-insured-deposits-english.pdf https://www.fdic.gov/resources/deposit-insurance/brochures/d... specifically this example: https://i.imgur.com/7kKHXEf.png https://i.imgur.com/7kKHXEf.png
  - zie 4y ago
    Just for fun: CD's are not required to be FDIC insured, it's optional based on the issuer of the CD. I'm not aware of any these days that are not FDIC insured, but that doesn't mean they don't exist. Your brokerage(assuming you have one) can sell you FDIC insured CD's as well, you don't have to go to $BANK to buy them. Assuming you want lots and lots of CD's this can make buying and managing multiple CD purchases a lot easier.
- remram 4y ago
  For everyone else, since it's in this thread multiple times: CDs = certificates of deposit, from the same site: https://www.nerdwallet.com/article/banking/when-why-to-open-cds https://www.nerdwallet.com/article/banking/when-why-to-open-...
- fisherjeff 4y ago
  Not to mention that it is almost trivially easy to shop rates/maturities and transact on, e.g., Vanguard. Much easier than opening several accounts.
jabroni_salad 4y ago
A CMA is by far the most straightforward answer. I'm pretty sure it's only meant to be a parking lot between selling securities and buying something else, but mine at fidelity does have all the functions a normal checking account has in addition to the $1.2m of FDIC protection.
strus 4y ago
Regarding 1., I don't know how much this applies to US, but make sure your other bank is not owned by a first bank in which you have account, or if they both are not owned by the same entity.
- O__________O 4y ago
  It depends on number factors, including account type; FDIC has information here: https://www.fdic.gov/resources/deposit-insurance/brochures/deposits-at-a-glance/ https://www.fdic.gov/resources/deposit-insurance/brochures/d... IntraFi Network Deposits, which is number 5 on the list, has 3000+ members, so there for sure number options even if directly managing the risks.
xnx 4y ago
You can easily have up to $1.25 million insured at one bank by naming your account "payable on death" and filling out a simple one page form naming 4 beneficiaries: https://www.fdic.gov/resources/deposit-insurance/brochures/documents/your-insured-deposits-english.pdf https://www.fdic.gov/resources/deposit-insurance/brochures/d...
- 300bps 4y ago
  Yes! Very easy to do. But in 2008 banks that failed were only giving out $250,000 initially and people using this and similar tricks had to wait much longer.
- sigmar 4y ago
  "if the owner of a single account has designated one or more beneficiaries who will receive the deposit when the account owner dies, the account would be insured as a revocable trust account." (page 4) Doesn't this quote mean your method would only let a single person have 500k insured? Since any third account that names a second POD beneficiary would be considered a revocable trust and there is a limit of 250k for all of one person's revocable trusts (page 3)?
  - xnx 4y ago
    I don't think so. There are some example scenarios in tables on this page: https://www.fdic.gov/resources/deposit-insurance/brochures/insured-deposits/index.html https://www.fdic.gov/resources/deposit-insurance/brochures/i...
- gamblor956 4y ago
  This is not true. The $250k applies per ownership category for each owner, and a recipient of a trust is not considered an owner for these purposes.
  - tothrowaway 4y ago
    Not an expert, but it seems like it is true. Quoting page 11: """ When a revocable trust owner names five or fewer beneficiaries, the owner’s trust deposits are insured up to $250,000 for each unique beneficiary. This rule applies to the combined interests of all beneficiaries the owner has named in all formal and informal revocable trust accounts at the same bank. When there are five or fewer beneficiaries, maximum deposit insurance coverage for each trust owner is determined by multiplying $250,000 times the number of unique beneficiaries, regardless of the dollar amount or percentage allotted to each unique beneficiary. Therefore, a revocable trust with one owner and five unique beneficiaries is insured up to $1,250,000. """
jokethrowaway 4y ago
That's crazy how many options you have in the states. I wonder what are the options in Europe (but there is not that much money over here). Gov protection is 100k per person and all my friends who need it just open accounts in different banks. It would be great to have a managed solution to automatically shift money around.
- justeleblanc 4y ago
  I don't know how seriously to take that comment because of the username (which seems to fit, honestly). But in case you're serious, let me make a couple of points: 1. Europe is big. Dozens of countries with different legal systems. If we're only talking about the EU, we have the DGS, but there are still differences between national implementations. 2. There is a lot of money in Europe. I can't easily find data about the whole of Europe, but the EU alone has a GDP comparable to that of the USA. "Not that much money" is a ridiculous assessment.
- rendx 4y ago
  https://en.wikipedia.org/wiki/Deposit_insurance#European_Union https://en.wikipedia.org/wiki/Deposit_insurance#European_Uni... typically 100k€ per person _and bank_, but e.g. Germany has voluntary mechanisms that protect (cash) assets way beyond that limit: https://de.wikipedia.org/wiki/Bundesverband_deutscher_Banken https://de.wikipedia.org/wiki/Bundesverband_deutscher_Banken provide 5m€ per individual and 50m€ protection for commercial customers https://de.wikipedia.org/wiki/Sicherungseinrichtung_des_Bundesverbandes_der_Deutschen_Volksbanken_und_Raiffeisenbanken https://de.wikipedia.org/wiki/Sicherungseinrichtung_des_Bund... and https://de.wikipedia.org/wiki/Institutssicherung_der_Sparkassen,_Landesbanken_und_Landesbausparkassen https://de.wikipedia.org/wiki/Institutssicherung_der_Sparkas... provide unlimited insurance You do not need "many options" if the default is already safe. It also means the risk of bank runs is a lot smaller in the first place.
dstala 4y ago
How much does additional insurance cost? Any rough estimate?
Scubabear68 4y ago
I have often wondered how celebrities and other “rich” people dealt with cash assets, this is interesting in the unlikely event I ever strike it rich. The flip side of the coin is how do rich people select accountants and wealth managers that they can trust? I have heard so many horror shows of celebrities getting ripped off by their accountants. It seems to happen even more to poor people who suddenly become rich - lottery winners seem unable to hang onto the cash. And the Murdaugh murder trial revealed networks of lawyers and fiduciaries playing fast and lose with client money (one example was a trust manager loaning Murdaugh huge amounts of cash from a trust for two minors who mom was killed in an accident, and the girls got a multi million judgement). Are there trust networks? Or word of mouth and luck?
- StrangeATractor 4y ago
  If you get set up with a good legal firm they'll point you in the right direction. A lot of people who get ripped off got tied up in some shady dealings but a good attorney will not only have connections, they'll keep you with people who pass the sniff test.
  - pfannkuchen 4y ago
    This makes sense. What sort of law? And how does one get set up with them?
    - StrangeATractor 4y ago
      Firms will often handle a range of issues, for example estate, trust, and real estate law (along with other things), which would be the people with the connections you're looking for. It also helps if you have a legal problem that needs dealing with. Go in for setting up a will or a trust and ask for some help finding somebody you can trust to help you manage that stuff (CPA, accountant, bank, broker, etc). Be prepared to leave a good impression though. Nobody wants to share connections if you make them look bad.
    - inconceivable 4y ago
      it's called probate law - wills, trusts, estates, special tax situations, etc. also if you go with a name brand wealth management firm (goldman, morgan stanley, etc.) it's less likely to be stolen from you, but not impossible.
coding123 4y ago
I'm slowly starting to realize that the WEF (world economic forum) literally has the means to make everyone own nothing. They just cause bank runs at all the banks. Everyone's cash is reset to 0, and FDIC insures the panic is at a minimum.
ianpurton 4y ago
Buy property and rent it out.
- mateo411 4y ago
  That's a good plan, but it's not very liquid. You can put a HELOC on each property, so you have access to cash.
- michpoch 4y ago
  What property do you buy for 250k?
  - jedberg 4y ago
    A house anywhere outside the coasts?
xiphias2 4y ago
One option missing from the list is using Bitcoin multisig in multiple countries with physical bank safe vaults. The Cyprus bail-in in 2013 was a wake-up call for me that I don't legally own the money that I have in my bank, and I never looked back.
- organsnyder 4y ago
  What happens if the value of Bitcoin tanks? How is this different than hoarding gold, Pokémon cards, etc.?
  - xiphias2 4y ago
    I never understood Pokémon cards, they have a marginal cost of 0 to print. With gold I have to trust 1 bank to hold it (generally the place where I buy it anyways, which is not secure), can't do multisig, and can't go through airports easily. About the value tanking: even if it tanks 90% more, it's holding its value great compared to when I bought it 10 years ago. These sound like theoritical things, but when storing real money all these problems get real.
- swatcoder 4y ago
  Suitable advice for people who see Bitcoin value as more stable than government-insured bank deposits held in USD, but that might not be so many people.
alangibson 4y ago
Maybe a dumb question, but why not buy short term treasuries instead of putting it in the bank? Any amount of money in treasuries has a strong implicit guarantee from Uncle Sam.
- SkyMarshal 4y ago
  That was my thought too, but where do you custody them where you're guaranteed to be able to take possession of them if the custodian goes under?
  - alangibson 4y ago
    Good question. You can buy direct from the Treasury, so I'd imagine that would be the most foolproof method. I've never done it so I don't know if there are limits to how much you can buy.
    - ghaff 4y ago
      As a bonus you get to use a website that's ridiculously bad by 1990s standards :-) There are limits to certain instruments but, in general, you should be able to buy what you want.
    - SkyMarshal 4y ago
      Treasury Direct might actually be an option for small or medium startups. The limit is only $10k for savings bonds, but $10million per auction for Treasury Marketable Securities (bills, notes, bonds, TIPS, etc). https://www.treasurydirect.gov/research-center/ https://www.treasurydirect.gov/research-center/ (scroll to Purchase Limits section)
  - NotYourLawyer 4y ago
    There’s SIPC if you hold them through a broker, but it also has limits.
- gerad 4y ago
  Short term treasuries are vulnerable to interest rate risk. Essentially if the government offers new treasuries at higher rates, then the market value of your treasuries drops. It’s ok if you hold the treasuries to maturity (then you’re only out the opportunity cost of holding the newer higher rate treasuries), but if you need the money at a moment’s notice then you will have to sell at a loss. This is essentially what happened to SVB.
Animats 4y ago
IntraFi, suggested in the article, looks a bit sketchy. Read their terms and conditions.[1]: "No Liability or Damages. INTRAFI SHALL HAVE NO LIABILITY OF ANY KIND RELATING TO, RESULTING FROM, OR IN CONNECTION WITH THE WEBSITE (INCLUDING BUT NOT LIMITED TO ANY CONTENT ON IT OR THE RESULTS OBTAINED FROM ITS USE), THESE TERMS AND CONDITIONS OF USE, OR INTRAFI’S BUSINESS, OR ANY LINKED SITE, FOR ANY CAUSE WHATSOEVER, WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE. IN NO EVENT SHALL ANY SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES AGAINST INTRAFI BE ALLOWED, EVEN IF INTRAFI HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, AND THE EXCLUSIONS OF DAMAGES IN THESE TERMS AND CONDITIONS OF USE ARE INDEPENDENT OF, AND SURVIVE THE FAILURE FOR ANY REASON OF, ANY OTHER REMEDY." What IntraFi is supposed to do is place your money in a large number of different banks. But what if they don't? Or they screw up, and put too much money in some flaky bank. The whole point of IntraFi is that it has to work when the financial system is in serious trouble. Otherwise, it has negative value, as an additional point of failure. [1] https://www.intrafinetworkdeposits.com/terms-conditions/ https://www.intrafinetworkdeposits.com/terms-conditions/
- gizmo686 4y ago
  No one is giving them hundreds of thousands of dollars based on the terms and conditions of their website. There will be actual legal contracts to be signed, and those will be the relevant contracts in event of a problem occurring. Annoyingly, I cannot actually find their agreement on their website (which is annoying common for financial services), but I found what looks like their contract on a random third party site through google [0]. If you are actually considering giving them hundreds of thousands of dollars to manage, you could contact them and ask for a copy of their standard agreement. [0] https://agendasuite.org/iip/fannin/file/getfile/17288 https://agendasuite.org/iip/fannin/file/getfile/17288
  - Animats 4y ago
    That's not much better. "... WE, INTRAFI, AND BNY MELLON WILL NOT HAVE ANY LIABILITY TO YOU OR ANY OTHER PERSON OR ENTITY FOR: (i) ANY LOSS ARISING OUT OF OR RELATING TO A CAUSE OVER WHICH WE DO NOT HAVE DIRECT CONTROL, INCLUDING THE FAILURE OF ELECTRONIC OR MECHANICAL EQUIPMENT OR COMMUNICATION LINES, TELEPHONE OR OTHER INTERCONNECT PROBLEMS, UNAUTHORIZED ACCESS, THEFT, OPERATOR ERRORS, GOVERNMENT RESTRICTIONS, OR FORCE MAJEURE." Note that "theft" is in that list. If they had a "hack", it's not their problem. There's also the part where they are listed with BNY Mellon as the owner of the CDs. The customer is not, apparently, on BNY Mellon's records: "Each CD will be recorded (i) on the records of the Destination Institution in the name of BNY Mellon, as our sub-custodian, (ii) on the records of BNY Mellon in our name, as your custodian, and (iii) on our records in your name." Remember, what IntraFi is doing has to work when the financial system is under extreme stress. Otherwise, it's pointless.
xwdv 4y ago
I don’t get it, couldn’t you just put your money in some very low risk money market fund instead of keeping the cash in a bank?
- jnwatson 4y ago
  Money market funds aren’t technically insured.
  - crushingk 4y ago
    Money Market accounts are deposit accounts. As such, they are insured by the FDIC.
    - jnwatson 4y ago
      Money market accounts are not money market funds. If you invest in the fund from your regular brokerage account, it is not FDIC insured (but it is SIPC insured like your cash balance).
      - crushingk 4y ago
        Thanks.
- crushingk 4y ago
  Money Market accounts are deposit accounts, as are CDs.
arbuge 4y ago
Brokered CDs are a good way to go and not mentioned in the article. They avoid the hassle of opening and managing multiple bank accounts with multiple banks. They're offered by many brokerages - I use them via Schwab.
- devmunchies 4y ago
  Yes, Brokerages have SIPC which is basically the same as FDIC. Going forward, companies might have their cash balanced across 2-3 banks and 2 brokerage accounts. The company I work for announced that we had only 5% of our cash in SVB, which is fine since it will eventually be paid back but we have other cash to use in the meantime.
jmyeet 4y ago
There are several lessons to learn from this SVB collapse that affect everyone: 1. Bonds are not risk-free as many would suggest. Even US Treasuries (conssidered the safest of bonds) are subject to this. Bond prices move inversey with interest rates. SVB had long-term MBS bonds at a low interest rate when interest rates went up. Yes, their bond portfolio still paid coupons but if you ever want or need to liquidate those bonds, they're subject to the interest rate price movements. 2. There's a principle in finance called the matching principle that you match the duration of debt to the life of what it's for. So if you're building a plant with a 30 year life, use 30 year debt. Many a company has tried to save money by, say, rolling over short-term debt because it's "cheaper" and have been made insolvent by a spike in interest rates. SVB had 10 year MBS bonds for a higher return when they made need to liquidate those bonds to cover withdrawals. For individuals, don't park your money in 30 year bonds if you need it next year. You're betting on interest rates. If that's not what you want, don't do it. 3. Once again we learn the value of regulation and get even more evidence of how deregulation doesn't work. Deregulation increases profits by shifting risks to the taxpayer. That's all. Tricks like splitting amounts between banks shouldn't be necessary. It is incredibly difficult to pierce the finances of banks and expose the risks of a run on the bank, particularly when on paper the bank has a lot of assets. This shouldn't be necessary. Custodial assets shouldn't be risked. SVB's assets need to be stripped and sold to cover depositor liabilities, shareholders be damned.
- HWR_14 4y ago
  In the FDIC case it shifts to the other insurance premium paying institutions. The taxpayer isn't on the hook. And SDC's assets are all seized. If there is anything left after repaying the depositors, the shareholders will split it. But I wouldn't bet on it being positive.
- vba616 4y ago
  >There's a principle in finance called the matching principle that you match the duration of debt to the life of what it's for. Hmm... If you have long term bonds, you can stagger them so you have some maturing at much shorter intervals than the full term. I think it's called a "ladder" or something like that. According to some experts, the problem with SVB's situation was they didn't have diverse enough depositors, since a typical bank has a lot of ordinary people as customers who do not have such a herd mentality or talk to each other. >SVB's assets need to be stripped and sold to cover depositor liabilities, shareholders be damned. This sounds like you don't think that is what is happening in the normal course of things. As far as I know, that roughly characterizes what always happens to a bank that fails in the US. That's what shareholders (of banks) are for, isn't it?
jnwatson 4y ago
Most brokerage accounts are insured for several million dollars and most have checking privileges now.
jedberg 4y ago
This is all fine and good, but here is a more important question: Why should this system exist at all? Why doesn't the government provide banking services with unlimited insurance? They wouldn't need to lend it out or anything to make a profit. They could literally just hold the cash for you until you need it. Since there would be no risk, it could be free and guaranteed. Let you get the money at the post office, which has branches everywhere, if you don't want to do it online. Why do we rely on private banks to hold our cash money with a need to make a profit off of it, and therefore have to do risky things like loan it out? Private banks could still exist in this system. They would loan out the government's money instead of their depositor's money. Their profits would come from the interest, and if they make bad loans they would get the collateral and have to sell it and maybe lose money. Heck they could even get a fee for bringing in new cash to the government holding system and dispensing cash to people who need money. Functionally the system would work exactly the same to the consumer, the bank would still make their profits, but people wouldn't be at risk of losing their balance if the bank goes under. They just move their balance to a new bank.
- ashwagary 4y ago
  >Why doesn't the government provide banking services with unlimited insurance? Or atleast increase coverage at regular intervals. Thanks to inflation, the amount of real value that is FDIC insured halves every so many years.
  - jedberg 4y ago
    It does change once in a while. It last changed in 2008 (2.5x the previous limit set in 1980). https://americandeposits.com/history-and-timeline-of-changes-to-fdic-coverage-limits/ https://americandeposits.com/history-and-timeline-of-changes...
    - ashwagary 4y ago
      Depending on your method of measuring inflation, a US dollar may have lost ~50% of its value since 2008. They should probably increase the frequency of adjustment or atleast tie it to CPI in some way.
eloff 4y ago
Don’t put it in a bank. Use a brokerage that gives you extra insurance - some insure up to $100M. Also brokerages that aren’t regulated as banks generally can’t touch your assets. Equities and bonds are yours. You can fill out a form to have them transferred somewhere else. If your brokerage is regulated as a bank, in the U.S. they seem to be able to “bail in” using your assets - which seems sketchy as fuck. I don’t know why people keep more than $250k (or 100k euros or 80k pounds, or whatever the insured amount is) in a single bank. Nobody understands the risks involved in the financial house of cards that banks build. Don’t trust them.
frereubu 4y ago
In the UK, National Savings and Insurance - https://www.nsandi.com/ https://www.nsandi.com/ - is run by the government. Unlike most UK banks, which under the Financial Services Compensation Scheme have to protect up to £85,000 of savings per person, NS&I has an unlimited guarantee (presuming the UK doesn't go bankrupt of course...) and their savings interest rates are pretty reasonable.
somsak2 4y ago
Similar to MaxSafe mentioned in the article, Wealthfront offers $2m in FDIC insurance by spreading the deposits across banks -- https://support.wealthfront.com/hc/en-us/articles/360044302071-FDIC-insurance-for-Cash-Accounts https://support.wealthfront.com/hc/en-us/articles/3600443020...
crummy 4y ago
How does a company like Apple insure their billions of dollars of cash?
- khalilravanna 4y ago
  It sounds like they invest somewhat conservatively. By spreading across different issuers they’ll likely be insured more than if they put all their money in one pot. But given the amount of money I imagine the actual amount fully insured would be low. Maybe someone else has more details. > The company typically invests in highly rated securities, and its investment policy generally limits the amount of credit exposure to any one issuer. The policy generally requires investments to be investment grade, with the primary objective of minimizing the potential risk of principal loss. https://www.fool.com/investing/general/2016/04/05/by-this-measure-apple-is-the-worlds-largest-hedge.aspx https://www.fool.com/investing/general/2016/04/05/by-this-me...
- em500 4y ago
  Not privy to their financial management, but it's unlikely that they keep billions of dollars in cash. How it usually works when you have huge piles of legit cash coming in is, you buy short duration T-Bills that you keep rolling over and/or money market funds. The richer you are, the less actual cash you need. When you have excellent credit and incoming cash flow, you barely need any actual cash to pay people; you just need to issue an IOU or have your bank advance the cash for you.
bluetwo 4y ago
Use FDIC's Electronic Deposit Insurance Estimator (EDIE) tool to find your coverage and figure out how to maximize it: https://edie.fdic.gov/calculator.html https://edie.fdic.gov/calculator.html
deleted 4y ago
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bdcs 4y ago
I'm surprised some low-fee automatic solutions aren't recommended here. Robo-advisors can split your cash across multiple banks on the backend. Using WealthFront[0] as an example, their cash account offers 4.05% APY, and FDIC insurance on balances up to 2M using a ton of partner banks[1] (each with 250k insurance, or 500k for join accounts). It also can send checks, issues debit cards, etc. [0] No affiliation, other than being a happy customer. https://www.wealthfront.com/cash https://www.wealthfront.com/cash [1] https://www.wealthfront.com/cash-account-participant-banks https://www.wealthfront.com/cash-account-participant-banks
cjalmeida 4y ago
Buy T-bills if you need short term cash, other bonds if you can afford the time to maturity. Saved you a click.
dehrmann 4y ago
> Open an account at a different bank This works, but it's unfortunate that this workaround is a solution rather than just offering more insurance in the first place. That seems easier.
deleted 4y ago
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Jeffpk11 4y ago
[dead]

236 points by O__________O 4y ago

deleted 4y ago

[deleted]

> per institution Some banks are just brands, and use bank license of their mother. In that case both accounts share $250k limit. So be careful that insurance does not overlap.

O__________O 4y ago
True, though there are at least 3000 banking institutions that exist that this doesn’t apply to: https://news.ycombinator.com/item?id=35110141 https://news.ycombinator.com/item?id=35110141

m3kw9 4y ago

Maybe buying some low risk, good liquidity assets so you don’t keep so much cash in the bank will work better than doing all this

justeleblanc 4y ago

If I had $250k sitting like a duck in my bank account, I don't think I would take my financial advice from random websites. Sorry, but I just don't understand what the target audience of this is.

pclmulqdq 4y ago
This reads like an ad for MaxSafe.
- mousetree 4y ago
  Most likely is. That’s pretty much Nerdwallet’s business.
ChancyChance 4y ago
I found it useful. If you don't have any loans, make a lot a money, have no kids or expensive hobbies, and you already are maxing out your 401K, it just sorta piles up over the years. It's nice to read something like this once and a while since I don't have anyone to ask. Like should I move it from my credit union to my investment account. Is there a difference in insurance between the two?
- slg 4y ago
  You should do some more research than simply reading whatever is posted on HN or just get a financial advisor because this is a failure in financial planning that is causing you to miss a lot of potential growth. No individual who would miss $250k should have that much sitting as cash in a bank account unless they are planning to buy a house or other large purchase in the next couple of months. That money should be invested somewhere even if it is just all in short term CDs or bonds if you are an extremely risk-averse person.
  - ChancyChance 4y ago
    You're probably right.
  - massysett 4y ago
    It's not exactly "a lot" of potential growth. Yields on short-term investments have been so close to zero over the past several years that I'd argue it has not been worth the trouble to put the money into CDs or bonds. Only lately have yields on these investments been ticking significantly above zero. The extra burden - mental, accounting, tax compliance - of acquiring additional investments is worth something, and taking on that burden for measly returns may not be worthwhile. I'm only talking about short-term investments here. The whole point of short-term investments is that the principal needs to be relatively safe - but with that, the returns are meagre as well. Simply spreading it between multiple banks may be worth it.
    - slg 4y ago
      Spreading your money between multiple banks creates similar mental, accounting, and tax burdens as a simple investment would. Plus my "a lot" comment wasn't specifically connected to short term CDs. If you are going to let money sit for years, short term investments like that are the worst for growth second only to keeping everything in cash. That approach should only be taken by the most risk-averse people or people who need liquidity. Even still, OP is probably missing out on 5-figure potential gains by just doing nothing with over $250k+ for years. "A lot" is relative, but that is decent money that OP is effectively losing.
baq 4y ago
If you’re a startup founder working on your tech 120h/week you don’t want to think about your money if you already have it. I see this event as a black swan for startups: some will be wiped out like dinosaurs 65M years ago with their only fault being not aware of the meteor risk. Deal templates will get amended and the next batches will go on as before. Besides I’ll be very surprised if SVB isn’t called JPM by 9 am Monday.
- dgarrett 4y ago
  > Besides I’ll be very surprised if SVB isn’t called JPM by 9 am Monday. It will be called the Deposit Insurance National Bank of Santa Clara (DINB) on Monday. https://www.fdic.gov/resources/resolutions/bank-failures/failed-bank-list/silicon-valley.html https://www.fdic.gov/resources/resolutions/bank-failures/fai...
  - baq 4y ago
    That happened Friday. SIVB was no more at the time of the first announcement. I believe JPM will buy the husk late Sunday or very early Monday, but Twitter has different opinions. We’ll see.
sershe 4y ago
You overestimate the level of financial literacy that people have in tech industry, especially the immigrants... I can say from personal example that I "lost" a ton of money by letting cash just sit there, especially 10-12 years ago (I learned what stock market was, other than in the most abstract way, in 2008). And then when I learned a little bit was I talk to random friends, both immigrant and US-born, I get a feeling that my meager knowledge puts me in a pretty high percentile. Someone who grew up here asked me what CDs are; and just yesterday I was explaining what S&P 500 was ;)

novalis78 4y ago

Buy Bitcoin

WinstonSmith84 4y ago
... and short it at 1x which sounds like an ideal solution. But in fact, you're dependent on the exchange getting insolvent or hacked, etc. Since it's not your keys...

zie 4y ago

Fidelity has a program where they will insure up to 1.2M USD in FDIC insured cash: https://www.fidelity.com/why-fidelity/safeguarding-your-accounts https://www.fidelity.com/why-fidelity/safeguarding-your-acco... Otherwise I'd recommend reading from the source: https://www.fdic.gov/resources/deposit-insurance/ https://www.fdic.gov/resources/deposit-insurance/ as there are lots of weirdness as one should expect from old complicated insurance systems ;) But really, if you have more than $250k in cash, perhaps you should consider lowering your cash amounts. Certainly there are valid reasons to hold that much cash, but in general, most people probably shouldn't. If you put that cash in treasuries(even very short term treasuries so it's very cash like), you get paid interest for holding the bills, where most banks won't pay you much of anything for holding cash and treasuries are backed 100% by the US govt, unlike FDIC's 250k limit.

O__________O 4y ago
Lots of banks offer services like these; for example, IntraFi Network Deposits, which is mentioned in the article has more than 3000 members, which is more than 50% of US banks, since there are less than 5000 commercial banks in the US.
A4ET8a8uTh0 4y ago
I think this is one of those rare opportunities that I can add something useful to the discussion based on knowledge rather than just my opinion. Some banks are structured in a rather specific way, which allow them to have some rather unique products ( compared to the regular banking that is ). For example, certain IL bank has a fair amount of charters, which effectively allows them to offer deposit product that goes way over 250k ( at its core, it is basically CDARS though ). 2.5m if I remember right based on the amount of charters. << But really, if you have more than $250k in cash, perhaps you should consider lowering your cash amounts. Certainly there are valid reasons to hold that much cash, but in general, most people probably shouldn't. I This argument has been going on forever and will likely continue for as long as human race exists. There are reasons one should and shouldn't do this, but the reality is that it will heavily depend on individual situation and, I assume, such a person will be sensible enough to ask someone/s that can appropriately advise whether it makes sense for that individual case.

rcme 4y ago

Number 5 is a pretty good deal. You can buy CDs from other banks without opening an account there. The CDs have your typical duration, from one month to multiple years. Each CD is FDIC insured up to the $250K limit. So not only do you get a decent yield on your money, it's FDIC insured as long as you spread the CDs across multiple banks.

fullstop 4y ago
Just to clarify here, each CD is FDIC insured to $250K if it's the only account you have at that bank. see: https://www.fdic.gov/resources/deposit-insurance/brochures/documents/your-insured-deposits-english.pdf https://www.fdic.gov/resources/deposit-insurance/brochures/d... specifically this example: https://i.imgur.com/7kKHXEf.png https://i.imgur.com/7kKHXEf.png
- zie 4y ago
  Just for fun: CD's are not required to be FDIC insured, it's optional based on the issuer of the CD. I'm not aware of any these days that are not FDIC insured, but that doesn't mean they don't exist. Your brokerage(assuming you have one) can sell you FDIC insured CD's as well, you don't have to go to $BANK to buy them. Assuming you want lots and lots of CD's this can make buying and managing multiple CD purchases a lot easier.
remram 4y ago
For everyone else, since it's in this thread multiple times: CDs = certificates of deposit, from the same site: https://www.nerdwallet.com/article/banking/when-why-to-open-cds https://www.nerdwallet.com/article/banking/when-why-to-open-...
fisherjeff 4y ago
Not to mention that it is almost trivially easy to shop rates/maturities and transact on, e.g., Vanguard. Much easier than opening several accounts.

jabroni_salad 4y ago

A CMA is by far the most straightforward answer. I'm pretty sure it's only meant to be a parking lot between selling securities and buying something else, but mine at fidelity does have all the functions a normal checking account has in addition to the $1.2m of FDIC protection.

strus 4y ago

Regarding 1., I don't know how much this applies to US, but make sure your other bank is not owned by a first bank in which you have account, or if they both are not owned by the same entity.

O__________O 4y ago
It depends on number factors, including account type; FDIC has information here: https://www.fdic.gov/resources/deposit-insurance/brochures/deposits-at-a-glance/ https://www.fdic.gov/resources/deposit-insurance/brochures/d... IntraFi Network Deposits, which is number 5 on the list, has 3000+ members, so there for sure number options even if directly managing the risks.

xnx 4y ago

You can easily have up to $1.25 million insured at one bank by naming your account "payable on death" and filling out a simple one page form naming 4 beneficiaries: https://www.fdic.gov/resources/deposit-insurance/brochures/documents/your-insured-deposits-english.pdf https://www.fdic.gov/resources/deposit-insurance/brochures/d...

300bps 4y ago
Yes! Very easy to do. But in 2008 banks that failed were only giving out $250,000 initially and people using this and similar tricks had to wait much longer.
sigmar 4y ago
"if the owner of a single account has designated one or more beneficiaries who will receive the deposit when the account owner dies, the account would be insured as a revocable trust account." (page 4) Doesn't this quote mean your method would only let a single person have 500k insured? Since any third account that names a second POD beneficiary would be considered a revocable trust and there is a limit of 250k for all of one person's revocable trusts (page 3)?
- xnx 4y ago
  I don't think so. There are some example scenarios in tables on this page: https://www.fdic.gov/resources/deposit-insurance/brochures/insured-deposits/index.html https://www.fdic.gov/resources/deposit-insurance/brochures/i...
gamblor956 4y ago
This is not true. The $250k applies per ownership category for each owner, and a recipient of a trust is not considered an owner for these purposes.
- tothrowaway 4y ago
  Not an expert, but it seems like it is true. Quoting page 11: """ When a revocable trust owner names five or fewer beneficiaries, the owner’s trust deposits are insured up to $250,000 for each unique beneficiary. This rule applies to the combined interests of all beneficiaries the owner has named in all formal and informal revocable trust accounts at the same bank. When there are five or fewer beneficiaries, maximum deposit insurance coverage for each trust owner is determined by multiplying $250,000 times the number of unique beneficiaries, regardless of the dollar amount or percentage allotted to each unique beneficiary. Therefore, a revocable trust with one owner and five unique beneficiaries is insured up to $1,250,000. """

jokethrowaway 4y ago

That's crazy how many options you have in the states. I wonder what are the options in Europe (but there is not that much money over here). Gov protection is 100k per person and all my friends who need it just open accounts in different banks. It would be great to have a managed solution to automatically shift money around.

justeleblanc 4y ago
I don't know how seriously to take that comment because of the username (which seems to fit, honestly). But in case you're serious, let me make a couple of points: 1. Europe is big. Dozens of countries with different legal systems. If we're only talking about the EU, we have the DGS, but there are still differences between national implementations. 2. There is a lot of money in Europe. I can't easily find data about the whole of Europe, but the EU alone has a GDP comparable to that of the USA. "Not that much money" is a ridiculous assessment.
rendx 4y ago
https://en.wikipedia.org/wiki/Deposit_insurance#European_Union https://en.wikipedia.org/wiki/Deposit_insurance#European_Uni... typically 100k€ per person _and bank_, but e.g. Germany has voluntary mechanisms that protect (cash) assets way beyond that limit: https://de.wikipedia.org/wiki/Bundesverband_deutscher_Banken https://de.wikipedia.org/wiki/Bundesverband_deutscher_Banken provide 5m€ per individual and 50m€ protection for commercial customers https://de.wikipedia.org/wiki/Sicherungseinrichtung_des_Bundesverbandes_der_Deutschen_Volksbanken_und_Raiffeisenbanken https://de.wikipedia.org/wiki/Sicherungseinrichtung_des_Bund... and https://de.wikipedia.org/wiki/Institutssicherung_der_Sparkassen,_Landesbanken_und_Landesbausparkassen https://de.wikipedia.org/wiki/Institutssicherung_der_Sparkas... provide unlimited insurance You do not need "many options" if the default is already safe. It also means the risk of bank runs is a lot smaller in the first place.

dstala 4y ago

How much does additional insurance cost? Any rough estimate?

Scubabear68 4y ago

I have often wondered how celebrities and other “rich” people dealt with cash assets, this is interesting in the unlikely event I ever strike it rich. The flip side of the coin is how do rich people select accountants and wealth managers that they can trust? I have heard so many horror shows of celebrities getting ripped off by their accountants. It seems to happen even more to poor people who suddenly become rich - lottery winners seem unable to hang onto the cash. And the Murdaugh murder trial revealed networks of lawyers and fiduciaries playing fast and lose with client money (one example was a trust manager loaning Murdaugh huge amounts of cash from a trust for two minors who mom was killed in an accident, and the girls got a multi million judgement). Are there trust networks? Or word of mouth and luck?

StrangeATractor 4y ago
If you get set up with a good legal firm they'll point you in the right direction. A lot of people who get ripped off got tied up in some shady dealings but a good attorney will not only have connections, they'll keep you with people who pass the sniff test.
- pfannkuchen 4y ago
  This makes sense. What sort of law? And how does one get set up with them?
  - StrangeATractor 4y ago
    Firms will often handle a range of issues, for example estate, trust, and real estate law (along with other things), which would be the people with the connections you're looking for. It also helps if you have a legal problem that needs dealing with. Go in for setting up a will or a trust and ask for some help finding somebody you can trust to help you manage that stuff (CPA, accountant, bank, broker, etc). Be prepared to leave a good impression though. Nobody wants to share connections if you make them look bad.
  - inconceivable 4y ago
    it's called probate law - wills, trusts, estates, special tax situations, etc. also if you go with a name brand wealth management firm (goldman, morgan stanley, etc.) it's less likely to be stolen from you, but not impossible.

coding123 4y ago

I'm slowly starting to realize that the WEF (world economic forum) literally has the means to make everyone own nothing. They just cause bank runs at all the banks. Everyone's cash is reset to 0, and FDIC insures the panic is at a minimum.

ianpurton 4y ago

Buy property and rent it out.

mateo411 4y ago
That's a good plan, but it's not very liquid. You can put a HELOC on each property, so you have access to cash.
michpoch 4y ago
What property do you buy for 250k?
- jedberg 4y ago
  A house anywhere outside the coasts?

xiphias2 4y ago

One option missing from the list is using Bitcoin multisig in multiple countries with physical bank safe vaults. The Cyprus bail-in in 2013 was a wake-up call for me that I don't legally own the money that I have in my bank, and I never looked back.

organsnyder 4y ago
What happens if the value of Bitcoin tanks? How is this different than hoarding gold, Pokémon cards, etc.?
- xiphias2 4y ago
  I never understood Pokémon cards, they have a marginal cost of 0 to print. With gold I have to trust 1 bank to hold it (generally the place where I buy it anyways, which is not secure), can't do multisig, and can't go through airports easily. About the value tanking: even if it tanks 90% more, it's holding its value great compared to when I bought it 10 years ago. These sound like theoritical things, but when storing real money all these problems get real.
swatcoder 4y ago
Suitable advice for people who see Bitcoin value as more stable than government-insured bank deposits held in USD, but that might not be so many people.

alangibson 4y ago

Maybe a dumb question, but why not buy short term treasuries instead of putting it in the bank? Any amount of money in treasuries has a strong implicit guarantee from Uncle Sam.

SkyMarshal 4y ago
That was my thought too, but where do you custody them where you're guaranteed to be able to take possession of them if the custodian goes under?
- alangibson 4y ago
  Good question. You can buy direct from the Treasury, so I'd imagine that would be the most foolproof method. I've never done it so I don't know if there are limits to how much you can buy.
  - ghaff 4y ago
    As a bonus you get to use a website that's ridiculously bad by 1990s standards :-) There are limits to certain instruments but, in general, you should be able to buy what you want.
  - SkyMarshal 4y ago
    Treasury Direct might actually be an option for small or medium startups. The limit is only $10k for savings bonds, but $10million per auction for Treasury Marketable Securities (bills, notes, bonds, TIPS, etc). https://www.treasurydirect.gov/research-center/ https://www.treasurydirect.gov/research-center/ (scroll to Purchase Limits section)
- NotYourLawyer 4y ago
  There’s SIPC if you hold them through a broker, but it also has limits.
gerad 4y ago
Short term treasuries are vulnerable to interest rate risk. Essentially if the government offers new treasuries at higher rates, then the market value of your treasuries drops. It’s ok if you hold the treasuries to maturity (then you’re only out the opportunity cost of holding the newer higher rate treasuries), but if you need the money at a moment’s notice then you will have to sell at a loss. This is essentially what happened to SVB.

Animats 4y ago

IntraFi, suggested in the article, looks a bit sketchy. Read their terms and conditions.[1]: "No Liability or Damages. INTRAFI SHALL HAVE NO LIABILITY OF ANY KIND RELATING TO, RESULTING FROM, OR IN CONNECTION WITH THE WEBSITE (INCLUDING BUT NOT LIMITED TO ANY CONTENT ON IT OR THE RESULTS OBTAINED FROM ITS USE), THESE TERMS AND CONDITIONS OF USE, OR INTRAFI’S BUSINESS, OR ANY LINKED SITE, FOR ANY CAUSE WHATSOEVER, WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE. IN NO EVENT SHALL ANY SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES AGAINST INTRAFI BE ALLOWED, EVEN IF INTRAFI HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, AND THE EXCLUSIONS OF DAMAGES IN THESE TERMS AND CONDITIONS OF USE ARE INDEPENDENT OF, AND SURVIVE THE FAILURE FOR ANY REASON OF, ANY OTHER REMEDY." What IntraFi is supposed to do is place your money in a large number of different banks. But what if they don't? Or they screw up, and put too much money in some flaky bank. The whole point of IntraFi is that it has to work when the financial system is in serious trouble. Otherwise, it has negative value, as an additional point of failure. [1] https://www.intrafinetworkdeposits.com/terms-conditions/ https://www.intrafinetworkdeposits.com/terms-conditions/

gizmo686 4y ago
No one is giving them hundreds of thousands of dollars based on the terms and conditions of their website. There will be actual legal contracts to be signed, and those will be the relevant contracts in event of a problem occurring. Annoyingly, I cannot actually find their agreement on their website (which is annoying common for financial services), but I found what looks like their contract on a random third party site through google [0]. If you are actually considering giving them hundreds of thousands of dollars to manage, you could contact them and ask for a copy of their standard agreement. [0] https://agendasuite.org/iip/fannin/file/getfile/17288 https://agendasuite.org/iip/fannin/file/getfile/17288
- Animats 4y ago
  That's not much better. "... WE, INTRAFI, AND BNY MELLON WILL NOT HAVE ANY LIABILITY TO YOU OR ANY OTHER PERSON OR ENTITY FOR: (i) ANY LOSS ARISING OUT OF OR RELATING TO A CAUSE OVER WHICH WE DO NOT HAVE DIRECT CONTROL, INCLUDING THE FAILURE OF ELECTRONIC OR MECHANICAL EQUIPMENT OR COMMUNICATION LINES, TELEPHONE OR OTHER INTERCONNECT PROBLEMS, UNAUTHORIZED ACCESS, THEFT, OPERATOR ERRORS, GOVERNMENT RESTRICTIONS, OR FORCE MAJEURE." Note that "theft" is in that list. If they had a "hack", it's not their problem. There's also the part where they are listed with BNY Mellon as the owner of the CDs. The customer is not, apparently, on BNY Mellon's records: "Each CD will be recorded (i) on the records of the Destination Institution in the name of BNY Mellon, as our sub-custodian, (ii) on the records of BNY Mellon in our name, as your custodian, and (iii) on our records in your name." Remember, what IntraFi is doing has to work when the financial system is under extreme stress. Otherwise, it's pointless.

xwdv 4y ago

I don’t get it, couldn’t you just put your money in some very low risk money market fund instead of keeping the cash in a bank?

jnwatson 4y ago
Money market funds aren’t technically insured.
- crushingk 4y ago
  Money Market accounts are deposit accounts. As such, they are insured by the FDIC.
  - jnwatson 4y ago
    Money market accounts are not money market funds. If you invest in the fund from your regular brokerage account, it is not FDIC insured (but it is SIPC insured like your cash balance).
    - crushingk 4y ago
      Thanks.
crushingk 4y ago
Money Market accounts are deposit accounts, as are CDs.

arbuge 4y ago

Brokered CDs are a good way to go and not mentioned in the article. They avoid the hassle of opening and managing multiple bank accounts with multiple banks. They're offered by many brokerages - I use them via Schwab.

devmunchies 4y ago
Yes, Brokerages have SIPC which is basically the same as FDIC. Going forward, companies might have their cash balanced across 2-3 banks and 2 brokerage accounts. The company I work for announced that we had only 5% of our cash in SVB, which is fine since it will eventually be paid back but we have other cash to use in the meantime.

jmyeet 4y ago

There are several lessons to learn from this SVB collapse that affect everyone: 1. Bonds are not risk-free as many would suggest. Even US Treasuries (conssidered the safest of bonds) are subject to this. Bond prices move inversey with interest rates. SVB had long-term MBS bonds at a low interest rate when interest rates went up. Yes, their bond portfolio still paid coupons but if you ever want or need to liquidate those bonds, they're subject to the interest rate price movements. 2. There's a principle in finance called the matching principle that you match the duration of debt to the life of what it's for. So if you're building a plant with a 30 year life, use 30 year debt. Many a company has tried to save money by, say, rolling over short-term debt because it's "cheaper" and have been made insolvent by a spike in interest rates. SVB had 10 year MBS bonds for a higher return when they made need to liquidate those bonds to cover withdrawals. For individuals, don't park your money in 30 year bonds if you need it next year. You're betting on interest rates. If that's not what you want, don't do it. 3. Once again we learn the value of regulation and get even more evidence of how deregulation doesn't work. Deregulation increases profits by shifting risks to the taxpayer. That's all. Tricks like splitting amounts between banks shouldn't be necessary. It is incredibly difficult to pierce the finances of banks and expose the risks of a run on the bank, particularly when on paper the bank has a lot of assets. This shouldn't be necessary. Custodial assets shouldn't be risked. SVB's assets need to be stripped and sold to cover depositor liabilities, shareholders be damned.

HWR_14 4y ago
In the FDIC case it shifts to the other insurance premium paying institutions. The taxpayer isn't on the hook. And SDC's assets are all seized. If there is anything left after repaying the depositors, the shareholders will split it. But I wouldn't bet on it being positive.
vba616 4y ago
>There's a principle in finance called the matching principle that you match the duration of debt to the life of what it's for. Hmm... If you have long term bonds, you can stagger them so you have some maturing at much shorter intervals than the full term. I think it's called a "ladder" or something like that. According to some experts, the problem with SVB's situation was they didn't have diverse enough depositors, since a typical bank has a lot of ordinary people as customers who do not have such a herd mentality or talk to each other. >SVB's assets need to be stripped and sold to cover depositor liabilities, shareholders be damned. This sounds like you don't think that is what is happening in the normal course of things. As far as I know, that roughly characterizes what always happens to a bank that fails in the US. That's what shareholders (of banks) are for, isn't it?

jnwatson 4y ago

Most brokerage accounts are insured for several million dollars and most have checking privileges now.

jedberg 4y ago

This is all fine and good, but here is a more important question: Why should this system exist at all? Why doesn't the government provide banking services with unlimited insurance? They wouldn't need to lend it out or anything to make a profit. They could literally just hold the cash for you until you need it. Since there would be no risk, it could be free and guaranteed. Let you get the money at the post office, which has branches everywhere, if you don't want to do it online. Why do we rely on private banks to hold our cash money with a need to make a profit off of it, and therefore have to do risky things like loan it out? Private banks could still exist in this system. They would loan out the government's money instead of their depositor's money. Their profits would come from the interest, and if they make bad loans they would get the collateral and have to sell it and maybe lose money. Heck they could even get a fee for bringing in new cash to the government holding system and dispensing cash to people who need money. Functionally the system would work exactly the same to the consumer, the bank would still make their profits, but people wouldn't be at risk of losing their balance if the bank goes under. They just move their balance to a new bank.

ashwagary 4y ago
>Why doesn't the government provide banking services with unlimited insurance? Or atleast increase coverage at regular intervals. Thanks to inflation, the amount of real value that is FDIC insured halves every so many years.
- jedberg 4y ago
  It does change once in a while. It last changed in 2008 (2.5x the previous limit set in 1980). https://americandeposits.com/history-and-timeline-of-changes-to-fdic-coverage-limits/ https://americandeposits.com/history-and-timeline-of-changes...
  - ashwagary 4y ago
    Depending on your method of measuring inflation, a US dollar may have lost ~50% of its value since 2008. They should probably increase the frequency of adjustment or atleast tie it to CPI in some way.

eloff 4y ago

Don’t put it in a bank. Use a brokerage that gives you extra insurance - some insure up to $100M. Also brokerages that aren’t regulated as banks generally can’t touch your assets. Equities and bonds are yours. You can fill out a form to have them transferred somewhere else. If your brokerage is regulated as a bank, in the U.S. they seem to be able to “bail in” using your assets - which seems sketchy as fuck. I don’t know why people keep more than $250k (or 100k euros or 80k pounds, or whatever the insured amount is) in a single bank. Nobody understands the risks involved in the financial house of cards that banks build. Don’t trust them.

frereubu 4y ago

In the UK, National Savings and Insurance - https://www.nsandi.com/ https://www.nsandi.com/ - is run by the government. Unlike most UK banks, which under the Financial Services Compensation Scheme have to protect up to £85,000 of savings per person, NS&I has an unlimited guarantee (presuming the UK doesn't go bankrupt of course...) and their savings interest rates are pretty reasonable.

somsak2 4y ago

Similar to MaxSafe mentioned in the article, Wealthfront offers $2m in FDIC insurance by spreading the deposits across banks -- https://support.wealthfront.com/hc/en-us/articles/360044302071-FDIC-insurance-for-Cash-Accounts https://support.wealthfront.com/hc/en-us/articles/3600443020...

crummy 4y ago

How does a company like Apple insure their billions of dollars of cash?

khalilravanna 4y ago
It sounds like they invest somewhat conservatively. By spreading across different issuers they’ll likely be insured more than if they put all their money in one pot. But given the amount of money I imagine the actual amount fully insured would be low. Maybe someone else has more details. > The company typically invests in highly rated securities, and its investment policy generally limits the amount of credit exposure to any one issuer. The policy generally requires investments to be investment grade, with the primary objective of minimizing the potential risk of principal loss. https://www.fool.com/investing/general/2016/04/05/by-this-measure-apple-is-the-worlds-largest-hedge.aspx https://www.fool.com/investing/general/2016/04/05/by-this-me...
em500 4y ago
Not privy to their financial management, but it's unlikely that they keep billions of dollars in cash. How it usually works when you have huge piles of legit cash coming in is, you buy short duration T-Bills that you keep rolling over and/or money market funds. The richer you are, the less actual cash you need. When you have excellent credit and incoming cash flow, you barely need any actual cash to pay people; you just need to issue an IOU or have your bank advance the cash for you.

bluetwo 4y ago

Use FDIC's Electronic Deposit Insurance Estimator (EDIE) tool to find your coverage and figure out how to maximize it: https://edie.fdic.gov/calculator.html https://edie.fdic.gov/calculator.html

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bdcs 4y ago

I'm surprised some low-fee automatic solutions aren't recommended here. Robo-advisors can split your cash across multiple banks on the backend. Using WealthFront[0] as an example, their cash account offers 4.05% APY, and FDIC insurance on balances up to 2M using a ton of partner banks[1] (each with 250k insurance, or 500k for join accounts). It also can send checks, issues debit cards, etc. [0] No affiliation, other than being a happy customer. https://www.wealthfront.com/cash https://www.wealthfront.com/cash [1] https://www.wealthfront.com/cash-account-participant-banks https://www.wealthfront.com/cash-account-participant-banks

cjalmeida 4y ago

Buy T-bills if you need short term cash, other bonds if you can afford the time to maturity. Saved you a click.

dehrmann 4y ago

> Open an account at a different bank This works, but it's unfortunate that this workaround is a solution rather than just offering more insurance in the first place. That seems easier.

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Jeffpk11 4y ago

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