The last several days we saw two of the largest bank failures in history. Fortunately, customers of these banks aren’t going to lose any of their deposits. While this situation is resolved, it’s natural to want to know how your money is protected. In this post we’ll break down the safeguards that are in place and how you can protect your assets.
Investment accounts often represent a significant portion of one’s overall net worth. The possibility of a brokerage firm going out of business may raise concerns about the safety of your investments.
There are several layers of safeguards in place. For instance, registered brokerage firms must keep their customer securities (stocks, bonds, ETFs, etc.) and cash separated from their own. In the event a firm fails, customers still own the securities and they will be transferred to a new firm.
In addition, brokerage firms must meet minimum net capital requirements to be members of the Securities Investor Protection Corp (SIPC). This protection comes into play in the rare cases of firm failure where customer assets are missing because of theft or fraud. Well known examples of this would be Bernie Madoff or Stratton Oakmont (the firm that inspired The Wolf of Wall Street).
SIPC membership provides account protection up to a maximum of $500,000 per client. Our custodian, LPL Financial, has additional securities protection that covers losses above limits available from SIPC and would be payable up to a total of $750 million.
This weekend we saw the 2nd and 3rd largest bank failures in U.S. history (Silicon Valley Bank and Signature Bank). This has made individuals question how safe their money is.
The good news is in the 90-year history of the FDIC, no one has lost a penny of their insured deposits. And most of us will never have to worry about what it’s like to have more than $250,000 in the bank.
However, there are plenty of business owners with over $250,000 in the bank. During the recent bank collapse the US Treasury fully insured all deposits over the limit. But there is no guarantee they will do that again. The easiest way to boost your FDIC coverage is to spread your money across multiple banks.
One of my favorite basketball players, Giannis Antetokounmpo, put his money in 50 different banks, each holding $250,000. Born in Greece, Giannis is understandably concerned about banks maintaining solvency. Although it was a good idea, there are better options for high net worth individuals (Treasuries, CDs, etc.).
In today’s world, understanding how your money is protected is more important than ever. Whether you have investment accounts or bank accounts, there are several layers of protection in place to keep your money safe. By taking advantage of these options, such as spreading your money across multiple banks or choosing a brokerage firm that offers additional protection, you can ensure your financial security.
Disclaimers and Sources:
Please consult your financial advisor regarding your specific situation. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. We suggest speaking with your financial professional about your situation prior to investing.