Protecting Your Financial Future: Insuring Savings And Investments

There are several ways to insure your savings or investments, depending on the type of account and the level of risk you're comfortable with. Here are some options:

- Bank accounts: The Federal Deposit Insurance Corporation (FDIC) insures deposits at most banks, up to $250,000 per depositor, per ownership category, and per institution. To increase coverage, you can open accounts at multiple banks, use different ownership categories (e.g., individual and joint accounts), or utilise bank networks like IntraFi Network Deposits.

- Brokerage accounts: The Securities Investor Protection Corporation (SIPC) protects investors if their brokerage firm fails. It covers up to $500,000 per customer, including $250,000 in cash. However, it's important to note that SIPC does not protect against market activity or fraud.

- Credit unions: The National Credit Union Share Insurance Fund (NCUSIF) insures deposits at credit unions with National Credit Union Administration (NCUA) membership, up to $250,000 per person, per institution, and per ownership category.

- Portfolio insurance: This technique aims to protect stock market investments from a possible market crash. It involves selling in the futures market before or during a correction and then squaring off the futures position after the market correction.

- Guaranty funds: In the event of an insurance company failure, most states have guaranty funds that cover policyholders. These typically cover up to $300,000 in death benefits for life insurance and $100,000 for annuity contracts.

Understand Federal Deposit Insurance Corporation (FDIC) limits

The Federal Deposit Insurance Corporation (FDIC) is an independent federal agency that insures deposits in U.S. banks and protects customers in the event of bank failures. The FDIC was created in 1933 to maintain public confidence and encourage stability in the financial system.

The FDIC insures deposits up to $250,000 per depositor, per FDIC-insured bank, and per ownership category. This means that if you have multiple accounts at the same bank, your total deposits across all accounts will be insured up to $250,000. However, if you have accounts in different ownership categories, you may qualify for more than $250,000 in coverage. For example, if you have a single ownership account and a joint ownership account at the same bank, you will be insured for up to $250,000 for your single account and $250,000 for your share of the joint account.

The FDIC covers various types of accounts, including checking and savings accounts, certificates of deposit (CDs), money market accounts, individual retirement accounts (IRAs), revocable and irrevocable trust accounts, and employee benefit plans. It's important to note that the FDIC does not cover all financial products. Mutual funds, annuities, life insurance policies, stocks, and bonds are not insured by the FDIC.

To ensure your deposits are protected, it is crucial to confirm that your bank is FDIC-insured. You can use the FDIC's BankFind tool or look for the FDIC sign at your bank to verify its insurance status. Additionally, the FDIC provides resources and tools like the Electronic Deposit Insurance Estimator (EDIE) to help you understand and calculate your specific deposit insurance coverage.

Use bank networks to maximise coverage

One way to ensure your savings or investments are insured is to use bank networks to maximise coverage. Here's how you can do this:

Understand FDIC Insurance Limits

Before exploring bank networks, it's essential to understand the Federal Deposit Insurance Corporation (FDIC) insurance limits. The FDIC insures deposits up to $250,000 per depositor, per ownership category, and per institution. This means that if you have more than $250,000 in a single account at one bank, your money above that limit may not be fully insured.

Open Accounts at Multiple Banks

To maximise coverage, you can open accounts at multiple FDIC-insured banks. By spreading your deposits across different institutions, you can ensure that each account is insured up to $250,000. This strategy allows you to increase your overall coverage.

Utilise Sweep Networks

Sweep networks are a way for customer deposits to be spread across a network of banks. These networks are designed to help depositors insure large sums of money. By opting into a sweep program, your primary bank can distribute your deposits across multiple FDIC-insured banks, increasing your total insured amount. This approach saves you from having to manage multiple accounts at different banks.

Explore IntraFi Network Deposits

The IntraFi Network Deposits program is another tool to maximise coverage. It allows you to access FDIC insurance on millions of dollars without opening accounts at multiple banks. By keeping your money at one bank that is part of the IntraFi Network, your funds will be funnelled into deposit accounts at other network banks, providing you with additional insurance.

Open a Cash Management Account

Cash management accounts (CMAs) are hybrid accounts that combine features of checking, savings, and/or investment accounts. These accounts are typically offered by non-bank financial institutions and are insured by the FDIC. Some CMAs provide coverage of up to $2 million in total deposits, making them a viable option for those seeking to maximise coverage.

Consider a MaxSafe Account

MaxSafe accounts, offered by Wintrust, provide FDIC insurance coverage for balances of $250,000 up to $3.75 million per person. They achieve this level of protection by distributing deposits across multiple community bank charters, similar to the IntraFi Network approach. MaxSafe accounts include various account types, such as CDs, money market accounts, and IRAs.

By utilising these strategies and understanding the FDIC insurance limits, you can effectively use bank networks to maximise coverage for your savings or investments.

Open accounts with different ownership categories

Opening accounts with different ownership categories is a great way to increase your Federal Deposit Insurance Corporation (FDIC) insurance coverage. The FDIC insures money in deposit products, such as savings accounts, up to \$250,000 per depositor, per insured bank, for each account ownership category. So, by opening accounts with different ownership categories, you can increase the total amount of your insured deposits.

• Single accounts: These are owned by one person and include accounts such as certificates of deposit (CDs) and checking accounts held by a business that is classified as a sole proprietorship.
• Joint accounts: Joint accounts are owned by at least two people and can include checking accounts or money market accounts for a married couple. Each co-owner's share of their joint accounts is added together and insured up to \$250,000, in addition to their individual insured accounts.
• Revocable trust accounts: This type of account is owned by one or more people and names beneficiaries who will receive the money upon the owner's death. The owner can revoke, cancel, or change the trust at any time.
• Irrevocable trust accounts: An irrevocable trust account is held by a legal entity, and the owner contributes assets but gives up the power to cancel or change the arrangement.
• Business accounts: Business bank accounts are tailored to the needs of businesses of various sizes and separate business transactions from personal transactions.
• Retirement accounts: Some retirement accounts, such as traditional and Roth Individual Retirement Accounts (IRAs), fall into FDIC ownership categories for insurance purposes.
• Employee benefit plan accounts: These include employer-sponsored pension, 401(k), and profit-sharing plans.

By opening accounts in different ownership categories, you can maximize your FDIC insurance coverage and ensure that your savings are protected. It is important to note that the FDIC does not insure investment products, so be sure to carefully consider your options and understand the coverage limits for each type of account.

Open accounts at several banks

Opening accounts at multiple banks is a straightforward way to insure your excess deposits above the $250,000 Federal Deposit Insurance Corporation (FDIC) limit. The FDIC is a federal government agency that insures your bank account to protect your money in the unlikely event of a bank failure.

By opening accounts at different banks, you can easily insure your excess deposits. For example, if you have $300,000 in deposits at Bank A, you could move $100,000 of that to an account at Bank B, and so on. This strategy only works if the banks are distinct institutions. You can confirm this by checking their FDIC certificate numbers, which are unique to each bank.

It's important to note that opening accounts at different branches of the same bank won't increase your insurance coverage. Additionally, this approach may require more time and organisation to keep track of your accounts. However, you can simplify this process by using a personal finance app to sync account data and view balances and transactions in one place.

When choosing which banks to open accounts with, it's worth comparing interest rates and fees. Online banks typically offer higher annual percentage yields (APYs) and lower fees compared to traditional brick-and-mortar banks. By opening accounts at multiple banks, you can also take advantage of some of the best rates on certificates of deposit (CDs) and create a CD ladder.

In summary, opening accounts at several banks is a viable option to insure your savings or investments above the FDIC limit. It provides the benefit of increased insurance coverage and the potential for higher interest rates, but it also requires additional effort to manage multiple accounts.

Consider brokerage accounts

Brokerage accounts are investment accounts held at a licensed brokerage firm. Investors deposit funds into their brokerage account, and the brokerage firm transacts orders for investments such as stocks, bonds, mutual funds, and exchange-traded funds (ETFs) on their behalf. Brokerage accounts can be opened quickly online, and many firms allow you to open an account with no upfront deposit. However, you will need to fund the account before you can buy investments.

There are several types of brokerage accounts and brokerage firms, giving investors the chance to choose the model that best suits their financial needs. Here are some of the most common types:

• Full-service brokerage accounts: These accounts are ideal for investors seeking the expertise of a financial advisor. Full-service firms charge higher fees, including either a flat fee based on the size of the account or commissions on trades that they execute.
• Discount brokerage accounts: Investors who favour a do-it-yourself investment approach might consider discount brokerage firms, which charge significantly lower fees than full-service firms. Examples of discount brokerage firms include Charles Schwab, Fidelity, and ETrade.
• Robo-advisor accounts: Robo-advisors are digital platforms that offer financial planning and investment services driven by algorithms, not people. They are typically low-cost and require low account opening minimums.
• Online brokerage accounts: Online brokerages are a good choice for investors who prefer to select their own investments and execute their own trades via a website or mobile app. Examples of online brokers that offer commission-free trading include Robinhood, Charles Schwab, Fidelity, ETrade, and Vanguard.
• Cash brokerage accounts: A cash brokerage account requires you to deposit cash to start trading and limits your options to the basics, such as purchasing stock.
• Margin brokerage accounts: With a margin account, you can borrow money from your brokerage to make larger trades and more advanced trades, such as short-selling a stock. However, you will pay interest on the loaned amount, and there is a risk that the brokerage may sell your securities if the value of your account drops below a specific level.

When choosing a brokerage account, it is important to consider your investing style, short- and long-term goals, the types of investments you seek, and the level of service and support you want. It is also crucial to understand the risks involved and only invest money you are willing to lose.

Frequently asked questions