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Comment by tothrowaway | Hacker News Reader

I would never keep more than $250K in a bank. Many people (and even tellers at the bank) don't understand FDIC insurance ownership categories. You probably don't have as much insurance as you think. Bank failures do happen, and you don't want to lose thousands of dollars when it takes a few minutes to open up a second savings account. Ally, Barclays, American Express, Discover are all fine choices for parking money.

If you have tons of cash (nice problem to have), you can open up brokerage accounts (Schwab, Fidelity, Vanguard are good ones), drop your money in a money market, and SIPC insurance is good for $500K.

There are also "cash accounts" at some banks that will spread your money around for you to maximize FDIC coverage. I don't like this, because you're putting all your faith in one bank saying "trust us".

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I would be comfortable keeping hundreds of millions in a US bank.

FDIC insurance has pretty much never been pulled, the "failed bank" doesn't give you any insight into this, instead the FDIC uses the capitalization information of all the banks it has oversight over and uses that to act as a broker for sells before the insurance is needed.

They just get on the phone with a bigger bank and say "hey you wanna buy this massive pile of crap and mismanagement for pennies on the dollar with an assurance you'll avoid any antitrust issue or prosecution for fraud from this new subsidiary you'll have?"

And the bigger bank is like "woah all those customers and their info and people that think they have free checkings account? we can make all this money back in the first month!"

and all the balances are placed in the bigger more heavily capitalized bank.

In 2008 the big banks also had trouble, and it was pretty skillfully managed, note that FDIC insurance would not have been able to cover a big bank failing, it is a confidence scheme just like everything else. And the the consolidations occurred for the next 6 years. There is nothing proven to prevent losses during 2008's great financial crises, or a worse scenario, there are things that fortunately didn't happen.

All of this is before you have to worry about those insurance ownership categories. Because you're right, that is very nuanced!

It's either: FDIC insurance won't matter (small bank failing), or, FDIC insurance won't matter (big bank failing). And so given no proven alternatives, I don't worry about it.

You can min/max by having 100s of bank accounts with a max of $250k if you really want. I'll pass.

That's quite optimistic.

When IndyMac failed in 2008, the FDIC took over and payed in full the first $100,000 and %50 of the remaining amount. In 2018, it retroactively upped the limit to $250,000.

There larger banks are all bailed out, but that won't necessarily happen with medium sized banks that fail when there isn't a systemic financial crisis.

https://www.seattletimes.com/business/real-estate/extended-f...

Edit: during the savings and loan crisis, plenty of banks failed and insured accounts were only guarantee to receive the insured amount.

Yes IndyMac was a disaster, the disaster. Do you have examples of all the times insurance was pulled? I think that would be the most useful for these discussions

Fdic’s brokering behavior was a reaction that’s been very successful

See the dividend information for closed banks. Select a bank and see how much of the uninsured amount was paid to depositors, or select "All Banks" and sort by "Total Paid".

https://closedbanks.fdic.gov/dividends/

The FDIC does a very good job, and if the bank is closed early the chances of recovery are high.

During the S&L crisis there were plenty of such cases. That result in a lot of tragedies. A customer whose spouse has just died and they haven't had the chance to move money from to another account often lost half of their net worth.

Take any book on the period and you'll find many examples. I'd recommend The Best Way to Rob a Bank is to Own One by William K. Black.

Edit: In the dividend list, look for the latest information for any bank. It sometimes takes a decade for the last payment to be paid.

If you regularly keep large sums in bank deposits, a more efficient method is a sweep account [1]. These accounts “sweep” funds into multiple accounts every night to maximise overnight interest and FDIC protection.

[1] https://www.fidelity.com/bin-public/060_www_fidelity_com/doc...

SIPC won't help you get your money (what's left of it) in a timely manner if your money market fund breaks the buck.

If it’s over 250k why not consider something CDs or treasuries?

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