By now, anyone following the news has heard about the collapse of Silicon Valley Bank (SVB) and the ensuing bank crisis that we are watching play out. Many of our clients are rightly nervous about how these events may impact them from both an investment management perspective as well as a personal banking relationship perspective. As it turns out, the federal authorities rescued SVB’s customers by federally ensuring all deposits including those in excess of the $250,000 limit normally covered by the Federal Deposit Insurance Corp (FDIC). Let's take a closer look at how this may impact you.
How FDIC Insurance WorksThe FDIC was established in 1933 as an independent federal agency to protect the money you deposit in checking, savings, money market, CD, and retirement accounts at insured banks. FDIC coverage applies immediately as soon as you open your account with a FDIC insured bank. The standard insurance amount is $250,000 per depositor, per insured bank, for each ownership category.
Your Accounts with Hollow Brook
“Strength and Stability” describes our protection of client assets within BNY Mellon bank accounts and Pershing brokerage accounts.
- Firstly, all cash balances held in BNY Mellon bank accounts are FDIC insured. In addition, the cash is held in nominee name and never comingled with that of the bank. Should something happen to BNY Mellon, creditors never have any rights to the securities in client accounts.
- Secondly, the cash balances held in Pershing brokerage accounts are held in a bank sweep product called the Dreyfus Insured Deposits product. This bank “sweep” product provides daily liquidity and interest income and FDIC insurance coverage on balances up to $2.5 million. Essentially, the product is sweeping your cash into multiple accounts to layer multiple $250,000 limits of coverage up to $2.5 million. Pershing brokerage accounts also have insurance coverage on non-cash securities through the Securities Investor Protection Corp (SPIC), which provides account protection up to $500,000. Pershing also maintains excess SPIC coverage through underwriters at Llyod’s and other commercial insurers.
Your Accounts Away from Hollow Brook
There are a handful of ways you can protect your assets held away from BNY Mellon or Pershing.
- Firstly, you might consider opening multiple accounts as a way to boost FDIC coverage. 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. Therefore, you can get $250,000 coverage for each spouse’s individual account as well as $500,000 coverage for a joint account, making up $1 million of FDIC coverage at a single bank.
- Secondly, you might consider opening accounts at different institutions. There are no limits to the number of accounts an individual can have covered, if they are held by different institutions. Therefore, you could repeat the process and move funds to another bank to get more FDIC coverage.
- Thirdly, you can add beneficiaries to your accounts. By adding a payable-on-death designation or naming the account in the name of a revocable trust, you can get $250,000 coverage for each unique beneficiary listed on the account. Be sure you understand that adding beneficiaries will affect your estate plan as titling designations listed on accounts supersede the instructions left in a will.
- Lastly, consider moving cash to U.S. Treasurys, which are not covered by FDIC insurance, but are backed by the full faith and credit of the federal government. As interest rates have risen over the last year, these securities have become more attractive alternatives than cash sitting in bank accounts.
At Hollow Brook we help each of our clients integrate cash management into their long-term financial plan and investment strategy. While cash needs may change over time, we take a long term and holistic approach to managing multi-generational assets. This management style has allowed us to maximize the impact of our client’s dollars as well as safeguard against volatile market events. If you have questions about how best to position your cash, please reach out to us as we welcome the conversation.
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Disclaimer: Information provided is for educational purposes only. HBWM does not provide tax, legal, compliance, or accounting advice. In considering this material, you should discuss your individual circumstances with professionals in those areas before making any decisions. Further, HBWM makes no warranties with regard to such information, or a result obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.