How to Insure Your Money When You’re Banking over $250K (2022) | Hacker News Reader

How to Insure Your Money When You’re Banking over $250K (2022)

nerdwallet.com

236 pointsO__________O144 comments

Fidelity has a program where they will insure up to 1.2M USD in FDIC insured cash: https://www.fidelity.com/why-fidelity/safeguarding-your-acco...

Otherwise I'd recommend reading from the source: https://www.fdic.gov/resources/deposit-insurance/ as there are lots of weirdness as one should expect from old complicated insurance systems ;)

But really, if you have more than $250k in cash, perhaps you should consider lowering your cash amounts. Certainly there are valid reasons to hold that much cash, but in general, most people probably shouldn't. If you put that cash in treasuries(even very short term treasuries so it's very cash like), you get paid interest for holding the bills, where most banks won't pay you much of anything for holding cash and treasuries are backed 100% by the US govt, unlike FDIC's 250k limit.

Slightly tangental, Fidelity also has the option to put your accounts in "lock down" mode to prevent funding *outflows* (even transfers between accounts). This can help secure your account in addition to 2FA. I learned about this recently after +10yrs at Fidelity. Sadly, I don't think it is enabled by default.

I wish my bank had the same sort of option to prevent someone from just randomly guessing my account number for an ACH transfer.

This is exactly what I have wanted for a long time! I need to keep some amount of cash reasonably liquid (3-10 day retrieval process would be fine), but hate it sitting around, seemingly with no way to require the bank to mandate that it is really me making the withdrawal request.

Edit: Random internet poster did some testing (https://www.bogleheads.org/forum/viewtopic.php?t=382555) and found that the Fidelity Lockdown Mode will block ACATS pulls, but not ACH. Better than nothing, though still not what I want: money goes in, money does not come out until I sign something in blood.

Actual cash in a deposit box at the bank?

As long as you notice the ACH transfer and notify Fidelity, there is a very high likelihood they will be able to return your money. It's pretty easy to turn notifications on for those accounts and get notified as soon as Fidelity is notified about an ACH transfer.

This is one of the reasons ACH transfers take a few days to settle, to allow for fraud checking before settlement.

This is not about ACH. It's about ACATS:

https://www.bogleheads.org/forum/viewtopic.php?t=381060&

Ya, I know. Fidelity's lockdown mode blocks ACATS, but not ACH. Hence why I covered ACH in my comment. ACATS is a non-issue, if you turn on Lockdown mode.

this will not work if someone broke into your account already, or stole your identity and disguised as you, the first thing they do is to unlock it. Fidelity should have some push-to-apps login approach, I'm not sure if it has one yet.

Hijacked account is different than what GP is describing.

"lock down" is like Tesla's "autopilot" - the name implies more then what it is.

In particular, certain transaction can not and will not be blocked.

I think most banks have this if you talk to an appropriate rep. I have “insert only” accounts at multiple banks.

Could you give some examples which are available to a consumer accounts with modest balances (ie not exclusive for million dollar clients)?

I think this is one of those rare opportunities that I can add something useful to the discussion based on knowledge rather than just my opinion. Some banks are structured in a rather specific way, which allow them to have some rather unique products ( compared to the regular banking that is ).

For example, certain IL bank has a fair amount of charters, which effectively allows them to offer deposit product that goes way over 250k ( at its core, it is basically CDARS though ). 2.5m if I remember right based on the amount of charters.

<< But really, if you have more than $250k in cash, perhaps you should consider lowering your cash amounts. Certainly there are valid reasons to hold that much cash, but in general, most people probably shouldn't. I

This argument has been going on forever and will likely continue for as long as human race exists. There are reasons one should and shouldn't do this, but the reality is that it will heavily depend on individual situation and, I assume, such a person will be sensible enough to ask someone/s that can appropriately advise whether it makes sense for that individual case.

I wasn't trying to say Fidelity was the only game in town that will automatically manage the FDIC insurance process for you. One bonus for Fidelity, their program has been around a while and they manage more money than the US Govt spends in a year, so they have definitely grown into the, to big to let fail category.

I agree with your perspective.

Fidelity also offers an alternative, to its automated FDIC-insured deposit sweep, of keeping a brokerage/retirement account's cash in SPAXX, which is currently yielding 4.22%. (Both options are mostly transparent to the UX, and happen automatically -- you normally only see the dollar total, and a monthly interest/dividend transactions.)

SPAXX is riskier than FDIC-insured sweep, but I don't know how much riskier.

Rates for the FDIC-insured and SPAXX: https://accountopening.fidelity.com/ftgw/aong/aongapp/intere...

Thanks for the tip. I’m at Schwab and it appears they have a rough equivalent called SWVXX. I’ve been considering going more into CD/bond ladders for the rates lately, but it sure would be nice to have the flexibility to pull money out whenever.

I looked into this sort of thing a while back. And, while I have bonds including tax exempt ones, I came to the conclusion that it made sense to keep a 10% or so holding in my brokerage's sweep fund. The difference between that and messing with CDs and high grade bonds just wasn't that much. I series bonds from TreasuryDirect probably do make sense at the moment but you can only invest relatively modest amounts.

Every month I put enough to buy groceries into Series I bonds, with the thought that no matter what they should still be worth that much when they mature. Probably better ways to achieve that, but it is simple.

As a super-safe simple probably don't need to access for a few years but could if I had to investment, I series bonds make a lot of sense to me as part of a portfolio.

> I don't know how much riskier.

Read the prospectus, they are required by law to list all of the known risk(s) in that document.

In general, MMF's are mostly identical to cash, but they do have some quirk(s) that might cause problems, and it should be noted that none of them are FDIC insured, and SIPC insurance(which they will qualify under) is drastically different than FDIC. https://www.sipc.org/for-investors/

One problem with SPAXX (which I realized when doing my state taxes last week) is that the monthly dividends it pays aren't exempt from state income tax. I expected that they would be, since SPAXX invests in federal-level government bonds, but they aren't.

You probably need to buy bonds issued by your state, although that may increase risk

Treasuries are exempt from state taxes, at least when held directly

The real pro move would have been to create a Stripe payment link for your entire balance (and hit it as many times as you need to up the Stripe transaction maximum), and use your corporate SVB card to pay it all into your Stripe account. That way you don't have to use the bank wire facility, but can use the card networks.

I'm not sure that actually "works" in a situation like this. But it sounds good on paper I think.

Right now, there are checking accounts, savings accounts, CDs, and money market accounts (all of which are deposit accounts) paying 5%.

Not that I don't believe you, but you mind linking some? the best I could find was wealthfront cash, which is isn't a savings account but is giving 4.05% apy. Which is pretty good, but inflation's up at like 6.5%, so it's still a bit of a net loss

Some banks do it as a short term loss leader to acquire new customers. Eg Primus bank recently offered 5% interest, then after a month or two their rate fell back down to treasury APRs

I see 4.55% APY: https://www.bankrate.com/banking/savings/best-high-yield-int...

Fidelity SPAXX currently at 4.22% is close enough for me, because you get all the other Fidelity features.

Fidelity FZDXX money market fund 7-day SEC yield is 4.46%. Minimum $100k initial investment.

Some are listed here: https://www.marketwatch.com/picks/these-8-financial-institut...

I typically check the top rates for savings, checking, and CDs each week. Deals can appear then disappear quickly. The best rates often have restrictions, but not always.

NerdWallet has links to a bunch of high interest (4%+) savings accounts rn.

Lots of banks offer services like these; for example, IntraFi Network Deposits, which is mentioned in the article has more than 3000 members, which is more than 50% of US banks, since there are less than 5000 commercial banks in the US.

You can easily have up to $1.25 million insured at one bank by naming your account "payable on death" and filling out a simple one page form naming 4 beneficiaries: https://www.fdic.gov/resources/deposit-insurance/brochures/d...

"if the owner of a single account has designated one or more beneficiaries who will receive the deposit when the account owner dies, the account would be insured as a revocable trust account." (page 4)

Doesn't this quote mean your method would only let a single person have 500k insured? Since any third account that names a second POD beneficiary would be considered a revocable trust and there is a limit of 250k for all of one person's revocable trusts (page 3)?

I don't think so. There are some example scenarios in tables on this page: https://www.fdic.gov/resources/deposit-insurance/brochures/i...

Yes! Very easy to do. But in 2008 banks that failed were only giving out $250,000 initially and people using this and similar tricks had to wait much longer.

This is not true.

The $250k applies per ownership category for each owner, and a recipient of a trust is not considered an owner for these purposes.

Not an expert, but it seems like it is true. Quoting page 11:

""" When a revocable trust owner names five or fewer beneficiaries, the owner’s trust deposits are insured up to $250,000 for each unique beneficiary.

This rule applies to the combined interests of all beneficiaries the owner has named in all formal and informal revocable trust accounts at the same bank. When there are five or fewer beneficiaries, maximum deposit insurance coverage for each trust owner is determined by multiplying $250,000 times the number of unique beneficiaries, regardless of the dollar amount or percentage allotted to each unique beneficiary. Therefore, a revocable trust with one owner and five unique beneficiaries is insured up to $1,250,000. """

It is confusing, but it does seem that designating beneficiaries increases the insurable amount. Examples in tables on this page: https://www.fdic.gov/resources/deposit-insurance/brochures/i...

IntraFi, suggested in the article, looks a bit sketchy. Read their terms and conditions.[1]:

"No Liability or Damages. INTRAFI SHALL HAVE NO LIABILITY OF ANY KIND RELATING TO, RESULTING FROM, OR IN CONNECTION WITH THE WEBSITE (INCLUDING BUT NOT LIMITED TO ANY CONTENT ON IT OR THE RESULTS OBTAINED FROM ITS USE), THESE TERMS AND CONDITIONS OF USE, OR INTRAFI’S BUSINESS, OR ANY LINKED SITE, FOR ANY CAUSE WHATSOEVER, WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE. IN NO EVENT SHALL ANY SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES AGAINST INTRAFI BE ALLOWED, EVEN IF INTRAFI HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, AND THE EXCLUSIONS OF DAMAGES IN THESE TERMS AND CONDITIONS OF USE ARE INDEPENDENT OF, AND SURVIVE THE FAILURE FOR ANY REASON OF, ANY OTHER REMEDY."

What IntraFi is supposed to do is place your money in a large number of different banks. But what if they don't? Or they screw up, and put too much money in some flaky bank.

The whole point of IntraFi is that it has to work when the financial system is in serious trouble. Otherwise, it has negative value, as an additional point of failure.

[1] https://www.intrafinetworkdeposits.com/terms-conditions/

No one is giving them hundreds of thousands of dollars based on the terms and conditions of their website. There will be actual legal contracts to be signed, and those will be the relevant contracts in event of a problem occurring.

Annoyingly, I cannot actually find their agreement on their website (which is annoying common for financial services), but I found what looks like their contract on a random third party site through google [0]. If you are actually considering giving them hundreds of thousands of dollars to manage, you could contact them and ask for a copy of their standard agreement.

[0] https://agendasuite.org/iip/fannin/file/getfile/17288

That's not much better.

"... WE, INTRAFI, AND BNY MELLON WILL NOT HAVE ANY LIABILITY TO YOU OR ANY OTHER PERSON OR ENTITY FOR: (i) ANY LOSS ARISING OUT OF OR RELATING TO A CAUSE OVER WHICH WE DO NOT HAVE DIRECT CONTROL, INCLUDING THE FAILURE OF ELECTRONIC OR MECHANICAL EQUIPMENT OR COMMUNICATION LINES, TELEPHONE OR OTHER INTERCONNECT PROBLEMS, UNAUTHORIZED ACCESS, THEFT, OPERATOR ERRORS, GOVERNMENT RESTRICTIONS, OR FORCE MAJEURE."

Note that "theft" is in that list. If they had a "hack", it's not their problem.

There's also the part where they are listed with BNY Mellon as the owner of the CDs. The customer is not, apparently, on BNY Mellon's records:

"Each CD will be recorded (i) on the records of the Destination Institution in the name of BNY Mellon, as our sub-custodian, (ii) on the records of BNY Mellon in our name, as your custodian, and (iii) on our records in your name."

Remember, what IntraFi is doing has to work when the financial system is under extreme stress. Otherwise, it's pointless.

I assume it goes without saying, but this is not legal advice. Speak with an actual lawyer before signing contracts for this magnitude of money.

You also skipped out on:

> SUBJECT TO OUR REIMBURSEMENT OBLIGATION IN SECTION 9.3(b), AND EXCEPT AS MAY BE OTHERWISE REQUIRED BY APPLICABLE LAW

9.3(b):

> If all or part of your deposit at a Destination Institution is uninsured because of our failure to comply with the requirements set forth in Section 9.3(a), and if the Destination Institution fails and you do not otherwise recover the uninsured portion, we will reimburse you for your documented loss of the uninsured portion that you do not otherwise recover.

9.3(a):

> We will maintain, directly or through a Service Provider, appropriate records of our placements for you. We will not place deposits for you through the CD Option at a Destination Institution that is the subject of a theneffective exclusion on your Exclusions List, at a Destination Institution that is the subject of a theneffective rejection by you, or at a Destination Institution under one Depositor Identifier in an amount that exceeds the SMDIA

IntraFi is there to solve a specific problem: working around the size limitations of the FDIC.

> Note that "theft" is in that list. If they had a "hack", it's not their problem.

If that "hack" did not effect their records of your deposits, then it really isn't your problem. They know what money is owed to you and who is holding it. If it does effect their records, they are liable because of their 9.3(a) obligation for maintaining records.

If a third party bank is hacked, you are correct that they are excluding themselves from direct liability. They do, however, have evidence that that bank owes you money. If the bank is unable to pay its liabilities (of which you are one), then they are a failed bank, and FDIC kicks in to reimburse you.

It is also worth remembering that financial crises thus far have always been economic issues. They have not been the result of the underlying infrastructure powering the financial sector failing. The financial system being "under extreme stress" does not imply that their computer systems are having any problems.

> we will reimburse you

But they probably won't have the money. IntraFi isn't that big. You're just an ordinary creditor of a bankrupt company at that point.

This is a generic problem with non-bank financial intermediaries.

"Who's the counter party?"

I have often wondered how celebrities and other “rich” people dealt with cash assets, this is interesting in the unlikely event I ever strike it rich.

The flip side of the coin is how do rich people select accountants and wealth managers that they can trust? I have heard so many horror shows of celebrities getting ripped off by their accountants. It seems to happen even more to poor people who suddenly become rich - lottery winners seem unable to hang onto the cash. And the Murdaugh murder trial revealed networks of lawyers and fiduciaries playing fast and lose with client money (one example was a trust manager loaning Murdaugh huge amounts of cash from a trust for two minors who mom was killed in an accident, and the girls got a multi million judgement).

Are there trust networks? Or word of mouth and luck?

If you get set up with a good legal firm they'll point you in the right direction. A lot of people who get ripped off got tied up in some shady dealings but a good attorney will not only have connections, they'll keep you with people who pass the sniff test.

> If you get set up with a good legal firm

Ok but that only kicks the can down the road. How do you get set up with a good legal firm? :)

Ask around and do internet research. Firms will usually have bios for their partners on their websites which will give you an idea of their caliber. Find the firm that has partners with SCOTUS cases under their belt (preferably winning them), or winning cases for 9 or 10 digit estates. They may cost >=$1000/hour but their skills and network are priceless when you need them.

You don't need a connection to get a foot in the door with them but it doesn't hurt.

Why not just apply this same logic to finding a good accountant?

They don't have the connections.

This makes sense. What sort of law? And how does one get set up with them?

Firms will often handle a range of issues, for example estate, trust, and real estate law (along with other things), which would be the people with the connections you're looking for. It also helps if you have a legal problem that needs dealing with. Go in for setting up a will or a trust and ask for some help finding somebody you can trust to help you manage that stuff (CPA, accountant, bank, broker, etc).

Be prepared to leave a good impression though. Nobody wants to share connections if you make them look bad.

it's called probate law - wills, trusts, estates, special tax situations, etc. also if you go with a name brand wealth management firm (goldman, morgan stanley, etc.) it's less likely to be stolen from you, but not impossible.

It’s pretty easy. You can use brokered CDs, etc.

Finding good people is difficult. Like anything else, you need internal controls. Unaffiliated attorneys and accountants who have an interest in asking awkward questions.

I'm surprised some low-fee automatic solutions aren't recommended here. Robo-advisors can split your cash across multiple banks on the backend. Using WealthFront[0] as an example, their cash account offers 4.05% APY, and FDIC insurance on balances up to 2M using a ton of partner banks[1] (each with 250k insurance, or 500k for join accounts). It also can send checks, issues debit cards, etc.

[0] No affiliation, other than being a happy customer. https://www.wealthfront.com/cash

[1] https://www.wealthfront.com/cash-account-participant-banks

Number 5 is a pretty good deal. You can buy CDs from other banks without opening an account there. The CDs have your typical duration, from one month to multiple years. Each CD is FDIC insured up to the $250K limit. So not only do you get a decent yield on your money, it's FDIC insured as long as you spread the CDs across multiple banks.

Just to clarify here, each CD is FDIC insured to $250K if it's the only account you have at that bank.

see: https://www.fdic.gov/resources/deposit-insurance/brochures/d...

specifically this example: https://i.imgur.com/7kKHXEf.png

Just for fun: CD's are not required to be FDIC insured, it's optional based on the issuer of the CD. I'm not aware of any these days that are not FDIC insured, but that doesn't mean they don't exist.

Your brokerage(assuming you have one) can sell you FDIC insured CD's as well, you don't have to go to $BANK to buy them. Assuming you want lots and lots of CD's this can make buying and managing multiple CD purchases a lot easier.

For everyone else, since it's in this thread multiple times:

CDs = certificates of deposit, from the same site: https://www.nerdwallet.com/article/banking/when-why-to-open-...

Not to mention that it is almost trivially easy to shop rates/maturities and transact on, e.g., Vanguard. Much easier than opening several accounts.

Don’t put it in a bank. Use a brokerage that gives you extra insurance - some insure up to $100M.

Also brokerages that aren’t regulated as banks generally can’t touch your assets. Equities and bonds are yours. You can fill out a form to have them transferred somewhere else. If your brokerage is regulated as a bank, in the U.S. they seem to be able to “bail in” using your assets - which seems sketchy as fuck.

I don’t know why people keep more than $250k (or 100k euros or 80k pounds, or whatever the insured amount is) in a single bank. Nobody understands the risks involved in the financial house of cards that banks build. Don’t trust them.

If I had $250k sitting like a duck in my bank account, I don't think I would take my financial advice from random websites. Sorry, but I just don't understand what the target audience of this is.

I found it useful. If you don't have any loans, make a lot a money, have no kids or expensive hobbies, and you already are maxing out your 401K, it just sorta piles up over the years. It's nice to read something like this once and a while since I don't have anyone to ask. Like should I move it from my credit union to my investment account. Is there a difference in insurance between the two?

You should do some more research than simply reading whatever is posted on HN or just get a financial advisor because this is a failure in financial planning that is causing you to miss a lot of potential growth. No individual who would miss $250k should have that much sitting as cash in a bank account unless they are planning to buy a house or other large purchase in the next couple of months. That money should be invested somewhere even if it is just all in short term CDs or bonds if you are an extremely risk-averse person.

It's not exactly "a lot" of potential growth. Yields on short-term investments have been so close to zero over the past several years that I'd argue it has not been worth the trouble to put the money into CDs or bonds. Only lately have yields on these investments been ticking significantly above zero.

The extra burden - mental, accounting, tax compliance - of acquiring additional investments is worth something, and taking on that burden for measly returns may not be worthwhile.

I'm only talking about short-term investments here. The whole point of short-term investments is that the principal needs to be relatively safe - but with that, the returns are meagre as well. Simply spreading it between multiple banks may be worth it.

Spreading your money between multiple banks creates similar mental, accounting, and tax burdens as a simple investment would.

Plus my "a lot" comment wasn't specifically connected to short term CDs. If you are going to let money sit for years, short term investments like that are the worst for growth second only to keeping everything in cash. That approach should only be taken by the most risk-averse people or people who need liquidity. Even still, OP is probably missing out on 5-figure potential gains by just doing nothing with over $250k+ for years. "A lot" is relative, but that is decent money that OP is effectively losing.

You're probably right.

If you have that much cash lying around, you really should talk to a financial advisor because there are some super low risk investments you can make that will be better and safer than cash, but it depends on your tax and financial situation, so no one can really tell you here.

I really want to go to the USA to be able to do that.

Where some workers who didn't go to college make more than 6000/month, and are able to store money.

France here, you win 2000€/month (on a 36k/year job) when you graduate from an engineering college. And the government is about to lower social security to have you save in 401Ks anyway.

It sounds like it would be worth consulting a professional about what to do, honestly.

bank accounts are insured up to 250k/account by the FDIC

investment accounts are insured up to 500k/account by the SIPC

If you’re a startup founder working on your tech 120h/week you don’t want to think about your money if you already have it.

I see this event as a black swan for startups: some will be wiped out like dinosaurs 65M years ago with their only fault being not aware of the meteor risk. Deal templates will get amended and the next batches will go on as before.

Besides I’ll be very surprised if SVB isn’t called JPM by 9 am Monday.

> Besides I’ll be very surprised if SVB isn’t called JPM by 9 am Monday.

It will be called the Deposit Insurance National Bank of Santa Clara (DINB) on Monday. https://www.fdic.gov/resources/resolutions/bank-failures/fai...

That happened Friday. SIVB was no more at the time of the first announcement. I believe JPM will buy the husk late Sunday or very early Monday, but Twitter has different opinions. We’ll see.

You overestimate the level of financial literacy that people have in tech industry, especially the immigrants... I can say from personal example that I "lost" a ton of money by letting cash just sit there, especially 10-12 years ago (I learned what stock market was, other than in the most abstract way, in 2008). And then when I learned a little bit was I talk to random friends, both immigrant and US-born, I get a feeling that my meager knowledge puts me in a pretty high percentile. Someone who grew up here asked me what CDs are; and just yesterday I was explaining what S&P 500 was ;)

This reads like an ad for MaxSafe.

Most likely is. That’s pretty much Nerdwallet’s business.

There are several lessons to learn from this SVB collapse that affect everyone:

1. Bonds are not risk-free as many would suggest. Even US Treasuries (conssidered the safest of bonds) are subject to this. Bond prices move inversey with interest rates. SVB had long-term MBS bonds at a low interest rate when interest rates went up. Yes, their bond portfolio still paid coupons but if you ever want or need to liquidate those bonds, they're subject to the interest rate price movements.

2. There's a principle in finance called the matching principle that you match the duration of debt to the life of what it's for. So if you're building a plant with a 30 year life, use 30 year debt. Many a company has tried to save money by, say, rolling over short-term debt because it's "cheaper" and have been made insolvent by a spike in interest rates.

SVB had 10 year MBS bonds for a higher return when they made need to liquidate those bonds to cover withdrawals.

For individuals, don't park your money in 30 year bonds if you need it next year. You're betting on interest rates. If that's not what you want, don't do it.

3. Once again we learn the value of regulation and get even more evidence of how deregulation doesn't work. Deregulation increases profits by shifting risks to the taxpayer. That's all.

Tricks like splitting amounts between banks shouldn't be necessary. It is incredibly difficult to pierce the finances of banks and expose the risks of a run on the bank, particularly when on paper the bank has a lot of assets. This shouldn't be necessary. Custodial assets shouldn't be risked.

SVB's assets need to be stripped and sold to cover depositor liabilities, shareholders be damned.

>There's a principle in finance called the matching principle that you match the duration of debt to the life of what it's for.

Hmm...

If you have long term bonds, you can stagger them so you have some maturing at much shorter intervals than the full term.

I think it's called a "ladder" or something like that.

According to some experts, the problem with SVB's situation was they didn't have diverse enough depositors, since a typical bank has a lot of ordinary people as customers who do not have such a herd mentality or talk to each other.

>SVB's assets need to be stripped and sold to cover depositor liabilities, shareholders be damned.

This sounds like you don't think that is what is happening in the normal course of things.

As far as I know, that roughly characterizes what always happens to a bank that fails in the US.

That's what shareholders (of banks) are for, isn't it?

> I think it's called a "ladder" or something like that.

The term "ladder" crops up in personal investing where people will seek a higher overall return by rotating and staggering 1-3 year certificates of deposit ("CDs") so you'll see terms like "CD ladder". So if 2 year CDs have the best rate and you have $100,000 in savings you want to park in basically cash then every month you'll invest 1/24 of that capital in the latest 2 year CD.

Technically companies can do this with bonds too and there is a mix of long term and short term assets but it doesn't tend to be called a ladder.

There is a concept in holding fixed income assets (which includes bonds) called "duration". The duration is the weighted time average of all the cash flows. Duration includes the coupon rate vs the prevailing interest rate, which for bonds would be the FEd rate.

So a bond with 8 years remaining might have a duration of, say, 4.1 years. The higher duration the more sensitive the price is to movements in interest rates.

So if you mix short and long term bonds, all you've really done is reduced the overall duration of your bond portfolio so you don't tend to think of this as a ladder.

Even if you had a ladder of long term bonds but you're still sensitive to interest rate movements and cash flow issues like a run on the bank.

SVB used depositor funds to acquire long term MBS bonds instead of rolling them in much shorter duration assets. Why? To eke out a few more cents in profit while adding huge risk. If SVB only held 3 month Fed debt and just constantly rolling it over then none of this would've happened.

In the FDIC case it shifts to the other insurance premium paying institutions. The taxpayer isn't on the hook.

And SDC's assets are all seized. If there is anything left after repaying the depositors, the shareholders will split it. But I wouldn't bet on it being positive.

Similar to MaxSafe mentioned in the article, Wealthfront offers $2m in FDIC insurance by spreading the deposits across banks -- https://support.wealthfront.com/hc/en-us/articles/3600443020...

Maybe a dumb question, but why not buy short term treasuries instead of putting it in the bank? Any amount of money in treasuries has a strong implicit guarantee from Uncle Sam.

Short term treasuries are vulnerable to interest rate risk. Essentially if the government offers new treasuries at higher rates, then the market value of your treasuries drops. It’s ok if you hold the treasuries to maturity (then you’re only out the opportunity cost of holding the newer higher rate treasuries), but if you need the money at a moment’s notice then you will have to sell at a loss.

This is essentially what happened to SVB.

Indeed, but SVB had 10 year maturities. I was thinking 30 days so there's little interest rate risk.

I'd recommend looking at FRNs which are currently ~0.2% over FedFunds (eg 4.8-5%). You can buy them through Treasury Direct, a brokerage account or more liquid (if you trust them) ETFs like USFR, and they are comparable or better than short CD ladders with better liquidity.

I'm kinda surprised medium sized companies were keeping more than 1 month (or pay period) of money sitting in a bank account.

https://www.google.com/search?q=usfr+etf

Short term treasuries have very very low risk. Even if you have to liquidate, you might lose a percent or two.

That was my thought too, but where do you custody them where you're guaranteed to be able to take possession of them if the custodian goes under?

Good question. You can buy direct from the Treasury, so I'd imagine that would be the most foolproof method. I've never done it so I don't know if there are limits to how much you can buy.

Treasury Direct might actually be an option for small or medium startups. The limit is only $10k for savings bonds, but $10million per auction for Treasury Marketable Securities (bills, notes, bonds, TIPS, etc).

https://www.treasurydirect.gov/research-center/ (scroll to Purchase Limits section)

As a bonus you get to use a website that's ridiculously bad by 1990s standards :-) There are limits to certain instruments but, in general, you should be able to buy what you want.

There’s SIPC if you hold them through a broker, but it also has limits.

This is all fine and good, but here is a more important question: Why should this system exist at all? Why doesn't the government provide banking services with unlimited insurance?

They wouldn't need to lend it out or anything to make a profit. They could literally just hold the cash for you until you need it. Since there would be no risk, it could be free and guaranteed. Let you get the money at the post office, which has branches everywhere, if you don't want to do it online.

Why do we rely on private banks to hold our cash money with a need to make a profit off of it, and therefore have to do risky things like loan it out?

Private banks could still exist in this system. They would loan out the government's money instead of their depositor's money. Their profits would come from the interest, and if they make bad loans they would get the collateral and have to sell it and maybe lose money. Heck they could even get a fee for bringing in new cash to the government holding system and dispensing cash to people who need money.

Functionally the system would work exactly the same to the consumer, the bank would still make their profits, but people wouldn't be at risk of losing their balance if the bank goes under. They just move their balance to a new bank.

> "Why doesn't the government provide banking services with unlimited insurance?"

They do, kind of: it's TreasuryDirect.gov. It's only accessible through a horrible web interface straight out of 1999, but it's the real thing.

TreasuryDirect lets you buy, hold, and sell Treasury bills, Treasury bonds, I Bonds, EE savings bonds, and other securities. Yes, you can also buy some of these, but not all, through your regular brokerage (Fidelity, Schwab, etc.), but here you can buy them all and titled in your own name -- or you plus a second person, or you POD to a third person, etc. And you can buy in smaller denominations if you want, not just big lots.

You can also open up linked accounts for your minor children and hold some of those securities and savings bonds in their own names. And like UTMA accounts, the property becomes theirs to manage when they turn eighteen.

And -- important in the context of the current SVB situation -- you can open a TreasuryDirect account for your company, including S Corps, C Corps, and even single-member LLCs.

And the interest you earn on all of these securities they sell is completely state tax free. You usually don't even get a 1099-DIV or 1099-INT from them unless you had a sale in the year, which you may not if you were holding long-term I Bonds, etc. (You might get one if you had an interest payment on a marketable security like a T-bill, though.)

Note that securities at TreasuryDirect do not have FDIC insurance nor SIPC insurance, because you're buying directly from the US government itself. But note that if they ever failed to honor their (our) own Treasury bills, repudiating our own debt, we would all have much, much bigger problems on our hands.

Treausurydirect is a great investment vehicle, but it doesn't replace a bank account.

I can't deposit my paycheck there, I can't get a debit card and pay for groceries with it. I can't write a check to pay my rent.

Unfortunately doing those things requires a private bank.

Actually, you can get some or all of your paycheck auto-deposited there! The Payroll Savings Option:

https://www.treasurydirect.gov/research-center/communication...

Some or all of your paycheck gets sent to a non-interest-earning account that is supposed to be used to buy I Bonds or EE Bonds. But you could, hypothetically, leave the funds in there without doing that step...

But yeah, I see your point about daily use. Perhaps your initial idea and the existing TreasuryDirect could be combined and expanded into the Postal Banking idea that other countries have had for a long time?

>Why doesn't the government provide banking services with unlimited insurance?

Or atleast increase coverage at regular intervals. Thanks to inflation, the amount of real value that is FDIC insured halves every so many years.

It does change once in a while. It last changed in 2008 (2.5x the previous limit set in 1980).

https://americandeposits.com/history-and-timeline-of-changes...

Depending on your method of measuring inflation, a US dollar may have lost ~50% of its value since 2008. They should probably increase the frequency of adjustment or atleast tie it to CPI in some way.

They do - it's called buying T bills.

I can't pay for groceries or rent with a T bill. I still need a bank account with a checkbook or debit card to do those things.

That bank account only needs to hold about 1 month of expenses. Not a lot of people have over 250k monthly expenses...

A lot of businesses do though.

Also, what if you're buying a house? You might want to keep the down payment around in cash for a quick purchase when you finally find the house you want. Or what about if you need to pay out some large expense and have to liquidate your investments.

You shouldn't have money at risk just because you need to hold a large cash position. That's the problem. There should be a risk free place to hold unlimited cash.

Public banks should also be needed for a cashless society. How can you expect people to be deprived of cash if they have to rely to a private corporation to simply survive? Give a state issued and guaranteed bank account to every citizen

Every central bank is working in a digital currency (CBDC); the insurance and safety will be one of the value propositions pitched by the government. CBDCs will enable governments to control money at the individual level, also, if needed.

Then, when the next lab-virus leaks, those that don’t comply with government mandates will be programmatically forbidden from spending their digital coins.

Wow. Name definitely checks out.

Every country’s central bank is at a different stage of CBDC adoption.

You can elect to put your head in the sand pretending this isn’t happening or assess initiatives underway and policies being promoted.

Some examples:

>[1] Nigeria bans ATM cash withdrawals over $225 a week to force use of CBDC

> [2] Deputy Managing Director of the IMF sharing how central bank digital currency (CBDC) would allow the government to precisely control what people can and cannot spend their money on.

> [3] Former UK Prime Minister Tony Blair calls for a digital database to monitor who is vaccinated and who is not for a future “pandemic” at WEF23

[1] https://cointelegraph.com/news/nigeria-bans-atm-cash-withdra...

[2] https://twitter.com/TimHinchliffe/status/1581058535609495552

[3] https://twitter.com/DrewHLive/status/1616109951264653312

https://www.bankofengland.co.uk/the-digital-pound

How does a company like Apple insure their billions of dollars of cash?

It sounds like they invest somewhat conservatively. By spreading across different issuers they’ll likely be insured more than if they put all their money in one pot. But given the amount of money I imagine the actual amount fully insured would be low. Maybe someone else has more details.

> The company typically invests in highly rated securities, and its investment policy generally limits the amount of credit exposure to any one issuer. The policy generally requires investments to be investment grade, with the primary objective of minimizing the potential risk of principal loss.

https://www.fool.com/investing/general/2016/04/05/by-this-me...

Not privy to their financial management, but it's unlikely that they keep billions of dollars in cash. How it usually works when you have huge piles of legit cash coming in is, you buy short duration T-Bills that you keep rolling over and/or money market funds. The richer you are, the less actual cash you need. When you have excellent credit and incoming cash flow, you barely need any actual cash to pay people; you just need to issue an IOU or have your bank advance the cash for you.

A CMA is by far the most straightforward answer. I'm pretty sure it's only meant to be a parking lot between selling securities and buying something else, but mine at fidelity does have all the functions a normal checking account has in addition to the $1.2m of FDIC protection.

In the UK, National Savings and Insurance - https://www.nsandi.com/ - is run by the government. Unlike most UK banks, which under the Financial Services Compensation Scheme have to protect up to £85,000 of savings per person, NS&I has an unlimited guarantee (presuming the UK doesn't go bankrupt of course...) and their savings interest rates are pretty reasonable.

I don’t get it, couldn’t you just put your money in some very low risk money market fund instead of keeping the cash in a bank?

Money Market accounts are deposit accounts, as are CDs.

Money market funds aren’t technically insured.

Money Market accounts are deposit accounts. As such, they are insured by the FDIC.

Money market accounts are not money market funds. If you invest in the fund from your regular brokerage account, it is not FDIC insured (but it is SIPC insured like your cash balance).

Thanks.

Most brokerage accounts are insured for several million dollars and most have checking privileges now.

Use FDIC's Electronic Deposit Insurance Estimator (EDIE) tool to find your coverage and figure out how to maximize it:

https://edie.fdic.gov/calculator.html

Brokered CDs are a good way to go and not mentioned in the article. They avoid the hassle of opening and managing multiple bank accounts with multiple banks. They're offered by many brokerages - I use them via Schwab.

Yes, Brokerages have SIPC which is basically the same as FDIC.

Going forward, companies might have their cash balanced across 2-3 banks and 2 brokerage accounts. The company I work for announced that we had only 5% of our cash in SVB, which is fine since it will eventually be paid back but we have other cash to use in the meantime.

Regarding 1., I don't know how much this applies to US, but make sure your other bank is not owned by a first bank in which you have account, or if they both are not owned by the same entity.

It depends on number factors, including account type; FDIC has information here:

https://www.fdic.gov/resources/deposit-insurance/brochures/d...

IntraFi Network Deposits, which is number 5 on the list, has 3000+ members, so there for sure number options even if directly managing the risks.

> Open an account at a different bank

This works, but it's unfortunate that this workaround is a solution rather than just offering more insurance in the first place. That seems easier.

How much does additional insurance cost? Any rough estimate?

Maybe buying some low risk, good liquidity assets so you don’t keep so much cash in the bank will work better than doing all this

Buy property and rent it out.

That's a good plan, but it's not very liquid. You can put a HELOC on each property, so you have access to cash.

What property do you buy for 250k?

A house anywhere outside the coasts?

Buy T-bills if you need short term cash, other bonds if you can afford the time to maturity.

Saved you a click.

> per institution

Some banks are just brands, and use bank license of their mother. In that case both accounts share $250k limit. So be careful that insurance does not overlap.

True, though there are at least 3000 banking institutions that exist that this doesn’t apply to:

https://news.ycombinator.com/item?id=35110141

Buy Bitcoin

... and short it at 1x which sounds like an ideal solution. But in fact, you're dependent on the exchange getting insolvent or hacked, etc. Since it's not your keys...

One option missing from the list is using Bitcoin multisig in multiple countries with physical bank safe vaults.

The Cyprus bail-in in 2013 was a wake-up call for me that I don't legally own the money that I have in my bank, and I never looked back.

Suitable advice for people who see Bitcoin value as more stable than government-insured bank deposits held in USD, but that might not be so many people.

What happens if the value of Bitcoin tanks? How is this different than hoarding gold, Pokémon cards, etc.?

I never understood Pokémon cards, they have a marginal cost of 0 to print.

With gold I have to trust 1 bank to hold it (generally the place where I buy it anyways, which is not secure), can't do multisig, and can't go through airports easily.

About the value tanking: even if it tanks 90% more, it's holding its value great compared to when I bought it 10 years ago.

These sound like theoritical things, but when storing real money all these problems get real.

That's crazy how many options you have in the states.

I wonder what are the options in Europe (but there is not that much money over here).

Gov protection is 100k per person and all my friends who need it just open accounts in different banks. It would be great to have a managed solution to automatically shift money around.

I don't know how seriously to take that comment because of the username (which seems to fit, honestly). But in case you're serious, let me make a couple of points:

1. Europe is big. Dozens of countries with different legal systems. If we're only talking about the EU, we have the DGS, but there are still differences between national implementations.

2. There is a lot of money in Europe. I can't easily find data about the whole of Europe, but the EU alone has a GDP comparable to that of the USA. "Not that much money" is a ridiculous assessment.

https://en.wikipedia.org/wiki/Deposit_insurance#European_Uni... typically 100k€ per person _and bank_, but e.g. Germany has voluntary mechanisms that protect (cash) assets way beyond that limit:

https://de.wikipedia.org/wiki/Bundesverband_deutscher_Banken provide 5m€ per individual and 50m€ protection for commercial customers

https://de.wikipedia.org/wiki/Sicherungseinrichtung_des_Bund... and https://de.wikipedia.org/wiki/Institutssicherung_der_Sparkas... provide unlimited insurance

You do not need "many options" if the default is already safe. It also means the risk of bank runs is a lot smaller in the first place.

I'm slowly starting to realize that the WEF (world economic forum) literally has the means to make everyone own nothing. They just cause bank runs at all the banks. Everyone's cash is reset to 0, and FDIC insures the panic is at a minimum.

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