WHERE’S MY CASH, AND IS IT SAFE?” FDIC AND SIPC INSURANCE

“Where’s My Cash, and Is It Safe?” FDIC and SIPC Insurance

 

Cash positions are “enjoying” a little more attention these days since the recent collapse of two regional financial institutions: Signature Bank and Silicon Valley Bank. Investors who for many years adopted a set-it-and-forget-it cash strategy are suddenly wondering, “Where’s my cash?” and “Is it safe?”

 

At Merit Wealth Advisors, we recognize that any turmoil in the banking system can rattle investors’ nerves and raise concerns. But understanding insurance protections provided through two independent, federally-mandated corporations can help offer greater peace of mind.

 

FDIC Insurance 

The Federal Deposit Insurance Corporation (FDIC) plays a crucial role in the banking system by insuring deposits at banks and savings institutions. FDIC insurance covers many types of accounts — including checking, savings, money market deposit accounts and certificates of deposit (CDs) — with a maximum insurance limit of $250,000 per depositor, per insured bank, for each account ownership category. A joint account with two owners would be insured up to $500,000. If a bank goes under, the FDIC works to find a buyer for it or, if necessary, pays depositors directly. The FDIC offers an online search tool where you can verify whether your banking institution is FDIC insured.

 

SIPC Protections

The Securities Investor Protection Corporation (SIPC) serves a similar function, providing insurance for customers' investments in securities such as stocks, bonds and mutual funds. SIPC provides coverage for up to $500,000 per customer, including up to $250,000 for cash claims. For joint accounts, it protects up to $1,000,000 per account, which includes a maximum of $500,000 for cash claims. If a brokerage firm fails, the SIPC takes action by either transferring customer accounts to another brokerage firm or selling the failed firm's assets to reimburse customers. The SIPC provides a member directory on its website that can be used to verify a brokerage firm’s coverage. Also note that the SIPC does not protect against investment losses, but rather the failure of a broker dealer.

 

Where’s My Cash?

“Cash” positions are typically held in a few different types of accounts: traditional or online bank savings accounts or CDs, money market accounts (MMAs) and money market funds (MMFs). In many ways, MMAs are similar to savings accounts, but typically offer a higher interest rate and some limited check-writing and debit card access. They’re also insured by the FDIC. MMFs, on the other hand, are a type of mutual fund offered by investment firms and generally consist of short-term, high-quality debt securities. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.  And unlike MMAs, these funds are covered by the SIPC. So while MMAs offer more stability and FDIC insurance, MMFs may provide higher returns but come with increased risks and SIPC coverage.

 

At LPL Financial, investors’ cash is held in bank or brokerage sweep accounts that transfer funds to large, well-established national banking institutions such as UBS and JPMorgan Chase. Funds in bank and brokerage accounts are FDIC and SIPC insured, respectively, up to the allowable limits.

 

Be an Informed and Proactive Investor

Here are some concrete steps you can take if you have concerns about the security of the banking system:

• Diversify investments across and within different asset classes, sectors — and financial institutions.
• Ensure your bank accounts and investment accounts are held at FDIC-insured banks and SIPC-covered brokerage firms — understand the coverage limits and how they apply to your accounts.
• Take advantage of higher FDIC and SIPC coverage limits afforded to joint accounts.
• Monitor the interest rate environment and other economic conditions to determine if any changes to your cash strategy are warranted.
• Periodically assess your portfolio to ensure it aligns with your risk tolerance and financial goals, and make any needed adjustments.
• Engage with a trusted financial advisor who can provide personalized guidance on risk management solutions and help you develop a cash strategy for your portfolio to provide adequate liquidity.

 

If you’re wondering “where’s my cash?” get all the facts before you fret. We’re here to help and can guide you toward investment vehicles that are a good fit with your own personal risk profile and investment goals and answer any other questions about FDIC and SIPC insurance you might have. Contact a member of the Merit Wealth Advisors team for support in making more informed decisions about your finances — so you can invest with greater clarity, comfort and confidence.

 

 

Securities offered though LPL Financial, member FINRA/SIPC. Investment advice offered through Merit Financial Group, LLC, an SEC Registered Investment Advisor.  Merit Financial Group, LLC and Merit Wealth Advisors are separate entities from LPL Financial.