In the wake of the recent news regarding SVB Bank and their swift downfall (From liquid to drowning in 48 hours), it’s important to know how to ensure that your money is protected! Remember, FDIC Insured Banks only cover up to $250,000!
As a business owner or real estate investor, managing your finances is a critical part of your success. From saving up for future investments to managing cash flow and expenses, your bank accounts play a vital role in your financial strategy. However, it’s important to understand that keeping all your funds in one account can be risky. If you have more than $250,000 in a single financial institution, you may be putting your money at risk if the bank fails.
Fortunately, there are several strategies you can use to diversify your bank accounts and keep your funds within the FDIC and SIPC insurance cap. Here are some tips to consider:
1. Use multiple FDIC Insured Banks: One of the easiest ways to diversify the risk to your money is to use multiple banks. By spreading your funds across different FDIC insured banks, you can ensure that each account is covered by FDIC insurance, even if you have a large amount of money saved up. Additionally, using multiple banks can help you take advantage of different interest rates, fees, and features that may be available.
2. Open multiple account owners: In addition to using multiple banks, you can also diversify your accounts by holding it in different types of ownership. The FDIC insures deposits according to the ownership category in which the funds are insured and how the accounts are titled. The standard deposit insurance coverage limit is $250,000 per depositor, per FDIC-insured bank, per ownership category. For example, you might have an account held in your name, another in the name of your business, and another in the name of your trust. This ensures coverage of up to $250,000 per owner, even if it is all at the same financial institution.
3. Use business accounts: If you own a business, it’s important to use separate accounts for your personal and business finances. This not only helps you stay organized, but it also provides additional insurance coverage. FDIC insurance covers up to $250,000 per depositor, per insured bank, so if you have separate accounts for your business and personal finances, you can effectively double your coverage.
4. Consider trust accounts: Trust accounts are another option to consider if you want to diversify your bank accounts. These accounts are typically used for estate planning purposes, but they can also be a useful way to protect your funds. Because the FDIC insures each beneficiary separately, a trust account with multiple beneficiaries can provide additional coverage for your deposits. In fact, with accurate accounting records, the FDIC insures $250,000 per beneficiary of the trust.
5. Diversify your Investment Accounts: The FDIC does not protect investment accounts. However, there is protection through the SIPC for up to $500,000, including $250,000 in cash, per brokerage account. If you have more than $500,000 in investments, it is essential to have them be held in different brokerages to maximize SIPC coverage because having multiple of the same types of accounts at the same brokerage only covers a maximum of $500,000 (irrespective of the number of accounts). The SIPC covers Stocks, bonds, Treasury securities, money market mutual funds, certificates of deposit.
6. Stay informed: Finally, it’s important to stay informed about your bank accounts and the FDIC and SIPC insurance coverage limits. As the financial landscape changes, the FDIC and SIPC may adjust its coverage limits or rules, so it’s important to stay up to date on any changes that may impact your accounts.
At LCO Law, we have chosen to use Trust Accounts so that we ensure up to $250,000 in FDIC protection for EACH CLIENT, not just each account! You can learn more about this in our Asset Protection Master Class!
In conclusion, diversifying your bank accounts is a smart move for business owners and real estate investors who want to protect their funds and stay within the FDIC and SIPC insurance cap. By using multiple banks, account types, business accounts, trust accounts, and staying informed, you can ensure that your funds are safe and secure, no matter what happens in the financial markets.