The Silicon Valley Bank meltdown at the end of last week caused a temporary massive panic about the security of the United States banking system.
Specifically, it pointed renewed attention to the typical $250,000 bank account limit for FDIC insurance. Reports say that 93% of the deposits in the failed SVB were not insured. (In other words, money above and beyond $250,000 in a single account.)
Money expert Clark Howard recorded a special podcast episode Sunday night to explain the consequences of the SVB failure, the government's immediate actions to backstop the bank and why the $250,000 limit is so important.
In the episode, Clark said that you cannot trust a bank officer claiming that this or that account will offer you greater than $250,000. In the Great Recession that started at the end of 2007, a lot of Clark listeners saw their uninsured bank deposits evaporate when they thought they were safe to go beyond $250,000.
Is it ever safe to go beyond $250,000 with a single institution? And can I trust the information on the FDIC website about these special circumstances?
That's what a listener of the Clark Howard Podcast recently asked.
Is It Safe To Trust the FDIC Regarding Insurance Beyond $250,000 at a Single Bank?
Can I go beyond $250,000 in deposits at one FDIC-insured financial institution and rest easy if it says so on the FDIC website?
That's what a listener to the special SVB podcast episode on March 16 wanted to know.
Asked Mike in Tennessee: "You talked about FDIC insurance for bank deposits up to $250,000. You implied that you should not trust advice about going above this amount if you have different deposit categories.
"If you go to FDIC official website it says joint accounts are insured to $500,000 and if you have a beneficiary listed it adds $250,000 for a total of $750,000. Should I not trust this information?"
Clark clarified that the FDIC is the only source you can trust when it comes to how much money they'll insure.
“You can trust this [FDIC] information. What I was talking about is that you cannot trust what anybody tells you who’s a bank officer at one of those overpriced fancy desks.
“The other twist with the FDIC is there are certain situations where you think, ‘Oh, that’s fine, I can do this and this and this,’ but it may not be cumulative. And you’ll see what I’m talking about if you look at [their rules on] joint and individual accounts and how much total coverage you have.”
For example, here’s a screenshot of the FDIC rules about insurance on joint bank accounts.
The key language there says “each co-owner’s shares … are added together and insured up to $250,000.”
I don’t know about you. But to my feeble brain, that’s as clear as mud.
Joint accounts are in fact insured up to $500,000. (Technically, $250,000 for each person authorized on the account.) But even if you go straight to the FDIC website and read carefully, misinterpreting the legal language could lead you to believe your money is insured and safe when it’s not the case.
Want to take the most conservative path and avoid any doubt that the money you put into an FDIC-insured bank is safe? You have three options, Clark says.
Safe Option 1: Spread Your Money Out To Different Financial Institutions
First, you can spread out your money to different banks.
“There’s an old expression, ‘Too cute by half.’ Meaning that I don’t want you to put your money all in a single institution trying to play these games,” Clark says. “Because “I much prefer that you spread your money out.”
Another saying that Clark’s podcast producer and company COO Christa DiBiase mentioned on the podcast episode is don’t keep all your eggs in one basket.
Other than being certain your cash isn't at risk, keeping it all with one institution out of convenience means that your savings and your daily spending money are in the same place. Clark prefers that you keep your savings separate so that you're not tempted to tap into it and so that you can select one of the best high-yield online savings accounts.
Safe Option 2: Utilize IntraFi Network Deposits (Formerly CDARS)
NBA superstar Giannis Antetokounmpo (Milwaukee Bucks) famously spread his money out to 50 different banks early in his career.
You may not be as wealthy and investment-adverse as he was at the time to the point that you need many different FDIC-insured accounts. But stashing $250,000 or less in even a handful of different banks can lead to stress and misery for your heirs, Clark says.
He prefers a program that's still called CDARS but now is owned by IntraFi Network Deposits. You can deposit all the cash you want in a bank via this program.
IntraFi Network Deposits will see to it that your money stays legally safe by spreading it around to different FDIC-insured accounts in exchange for a small percentage of your interest.
“This program eliminates any doubt,” Clark says. “You give up a little bit of interest to cover the administrative costs. But you know every dollar you have is properly insured.”
Think you’ll never have more than $250,000 in cash? It can happen easier than you think. Especially if you sell your house or if you sell your small business.
“What they do is by rote they just go into the bank or credit union they normally use and they deposit the money and not really thinking through that anything beyond $250,000 is suddenly at risk of going poof,” Clark says. “So the CDARS program is really great for somebody to use who has particularly sudden and maybe temporary newfound wealth.”
Safe Option 3: Discount Brokerage Alternatives
Let’s say you have excess cash and you don’t want to invest it all in the stock market.
In your case, Clark wants you to put your money into Fidelity, Schwab or Vanguard. You can put it in a brokerage-placed CD at Fidelity or Schwab.
“Or with any of the big three, put the money in a federal securities or government securities money market fund where it’s a fixed dollar a share but you get a really great interest rate and you’re actually in something superior to FDIC because instead of it being insured by the government you are investing in or saving in government directly,” Clark says.
Final Warning From Clark Howard
As Mike in Tennessee pointed out, it is possible for the FDIC to insure more than $250,000 at a single bank. For joint accounts, as an example, you and your spouse (or whomever you share the account with) each get $250,000 in coverage for a total of $500,000.
However, never get those rules from anyone other than the FDIC.
“No matter what people read, they’ll rely on what the salesperson tells them in a bank branch,” Clark says. “And the courts have been clear that if a banker tells you, ‘Oh, yeah, you’re covered beyond because we have this one this way and this one this other way,’ and then the bank goes bust, the Feds say tough, because we decide what’s covered.
“So the number one message is, never rely upon the bank manager or bank employee who tells you that if you do these things you will stretch the $250,000. And that is essential that people know that. Because I had too many times during the financial crisis where I’d have to say that same thing again and again to people who had lost money and it was just over.
“So you have to use the FDIC’s own tools or NCUA’s own tools for credit unions to make sure that your situation will stretch the $250,000.”
The standard rule is that the FDIC will insure your bank deposits of up to $250,000 at a single institution.
There are special rules and account types that will allow you to go beyond $250,000 with a single bank. The FDIC lays out those rules on its website.
However, the safest way to protect your money is to spread it out among different banks on your own or through IntraFi Network Deposits. You can also put it in one of the best investment companies and get protected yield through something like a money market fund.
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