Protecting large sums of cash.

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
airahcaz
Posts: 1492
Joined: Sat Oct 31, 2009 3:37 pm

Protecting large sums of cash.

Post by airahcaz » Sat Oct 20, 2018 8:25 am

FDIC insurance covers cash in a bank up to $250K. There’s only so many bank accounts one can open. SIPC covers brokerages, so isn’t $ safer invested in securities? Ignore risk & rate of returns at the moment. Thinking if one wins the Mega!
1) Invest you must 2) Time is your friend 3) Impulse is your enemy 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course. (Plagiarized, but worth stealing)

tbone555
Posts: 31
Joined: Thu Apr 13, 2017 1:28 pm

Re: Protecting large sums of cash.

Post by tbone555 » Sat Oct 20, 2018 8:27 am

Treasuries

User avatar
JoMoney
Posts: 6081
Joined: Tue Jul 23, 2013 5:31 am

Re: Protecting large sums of cash.

Post by JoMoney » Sat Oct 20, 2018 8:34 am

U.S. Treasuries directly held

FDIC Bank CDs via CDARS
https://www.cdars.com/home/how-cdars-works

Brokerage account with SIPC + additional insurance beyond SIPC limits
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

aqan
Posts: 425
Joined: Fri Nov 06, 2015 7:07 am

Re: Protecting large sums of cash.

Post by aqan » Sat Oct 20, 2018 9:02 am

This topic keeps coming up here a lot. Just wondering when was the last time someone actually needed FDIC protection?
Don’t flame me, I’m not saying you should not care about it, just trying to put a perspective in my head.

Broken Man 1999
Posts: 1509
Joined: Wed Apr 08, 2015 11:31 am

Re: Protecting large sums of cash.

Post by Broken Man 1999 » Sat Oct 20, 2018 9:29 am

Brokered CDs via Vanguard Brokerage could allow plenty of headroom for massive amounts invested.

Not that I will ever need so much coverage.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

User avatar
Abe
Posts: 1798
Joined: Fri Sep 18, 2009 5:24 pm
Location: Earth in the Milky Way Galaxy

Re: Protecting large sums of cash.

Post by Abe » Sat Oct 20, 2018 9:34 am

aqan wrote:
Sat Oct 20, 2018 9:02 am
This topic keeps coming up here a lot. Just wondering when was the last time someone actually needed FDIC protection?
Don’t flame me, I’m not saying you should not care about it, just trying to put a perspective in my head.
I had CD's at Corus Bank when it closed and it was covered by FDIC.

On Friday, September 11, 2009, Corus Bank, N.A., Chicago, IL was closed by the Office of the Comptroller or the Currency, and the Federal Deposit Insurance Corporation (FDIC) was named Receiver. No advance notice is given to the public when a financial institution is closed.
Slow and steady wins the race.

MathWizard
Posts: 3047
Joined: Tue Jul 26, 2011 1:35 pm

Re: Protecting large sums of cash.

Post by MathWizard » Sat Oct 20, 2018 9:37 am

aqan wrote:
Sat Oct 20, 2018 9:02 am
This topic keeps coming up here a lot. Just wondering when was the last time someone actually needed FDIC protection?
Don’t flame me, I’m not saying you should not care about it, just trying to put a perspective in my head.
WaMu (Washington Mutual) during the financial crisis. This was less than 10 years ago.

sport
Posts: 7383
Joined: Tue Feb 27, 2007 3:26 pm
Location: Cleveland, OH

Re: Protecting large sums of cash.

Post by sport » Sat Oct 20, 2018 9:46 am

A bank account with 4 beneficiaries would have 1M FDIC insurance. Five or ten of these would do the job.

jebmke
Posts: 8411
Joined: Thu Apr 05, 2007 2:44 pm

Re: Protecting large sums of cash.

Post by jebmke » Sat Oct 20, 2018 9:54 am

US treasuries and/or brokered CDs depending on a couple of factors like need for liquidity and whether it is taxable or not at state level; if not money needed very soon, the two-year point seems to be the sweet spot.
When you discover that you are riding a dead horse, the best strategy is to dismount.

mpsz
Posts: 302
Joined: Sat Jan 09, 2016 7:11 pm

Re: Protecting large sums of cash.

Post by mpsz » Sat Oct 20, 2018 9:58 am

People have mentioned CDARS. There is a sister product called ICS (Insured Cash Sweep) that works the same way but is a demand deposit: https://www.insuredcashsweep.com/

Basically, these sweep your deposits to other banks where they are held on your behalf and each sweep bank comes with an additional $250k in FDIC coverage. You only deal with the primary bank.

Fidelity's Cash Management account works in a similar way.

crswvc
Posts: 54
Joined: Sat Oct 05, 2013 12:27 am

Re: Protecting large sums of cash.

Post by crswvc » Sat Oct 20, 2018 10:05 am

MathWizard wrote:
Sat Oct 20, 2018 9:37 am
aqan wrote:
Sat Oct 20, 2018 9:02 am
This topic keeps coming up here a lot. Just wondering when was the last time someone actually needed FDIC protection?
Don’t flame me, I’m not saying you should not care about it, just trying to put a perspective in my head.
WaMu (Washington Mutual) during the financial crisis. This was less than 10 years ago.
FDIC insurance is for when a bank fails AND no buyer can be found.
In the case of WaMu
All deposit accounts, including savings, checking, money market, and retirement accounts and certificates of deposit, have been transferred to JPMorgan Chase Bank. No depositor has lost any money, even if it was above FDIC insurance limits
https://money.usnews.com/money/blogs/pl ... -consumers

skepticalobserver
Posts: 934
Joined: Tue Jul 29, 2014 11:29 am

Re: Protecting large sums of cash.

Post by skepticalobserver » Sat Oct 20, 2018 10:17 am

aqan wrote:
Sat Oct 20, 2018 9:02 am
Just wondering when was the last time someone actually needed FDIC protection?
I've had a couple of banks go south, including one thru a broker. FDIC coverage lets me sleep.

Large sums should be invested in treasuries, particularly t-bills (one year currently at 2.64%). The treasury yield curve roll-down coupled with narrow bid/ask spreads provides principal stability.

Turbo29
Posts: 178
Joined: Tue May 01, 2018 7:12 am

Re: Protecting large sums of cash.

Post by Turbo29 » Sat Oct 20, 2018 11:32 am

MathWizard wrote:
Sat Oct 20, 2018 9:37 am
aqan wrote:
Sat Oct 20, 2018 9:02 am
This topic keeps coming up here a lot. Just wondering when was the last time someone actually needed FDIC protection?
Don’t flame me, I’m not saying you should not care about it, just trying to put a perspective in my head.
WaMu (Washington Mutual) during the financial crisis. This was less than 10 years ago.
Yep, I remember that Friday night well. I still have the accounts and still use my WaMu checks on the rare occasion I need to write one. Chase honors them no problem.

Interesting aside. About three weeks prior I had done a push ACH from another bank to WaMu. They would not show the funds as available and the phone rep said it was their policy to hold them for five days (even on push ACH's). I finally got exasperated and asked, "You know why your bank is paying such high interest don't you? It it because it is going to collapse soon." She protested, "No sir, we are very strong." I replied, "No you are not" and ended the call. I had no special knowledge of what was to come before the end of the month, I was just angry.

I always wondered if the rep remembered that conversation when they did collapse.
crswvc wrote:
Sat Oct 20, 2018 10:05 am


FDIC insurance is for when a bank fails AND no buyer can be found.
In the case of WaMu
All deposit accounts, including savings, checking, money market, and retirement accounts and certificates of deposit, have been transferred to JPMorgan Chase Bank. No depositor has lost any money, even if it was above FDIC insurance limits
https://money.usnews.com/money/blogs/pl ... -consumers
Chase had wanted to buy them for a while to expand their branch network but WaMu turned them down. Some say the fix was in and that the Feds let WaMu collapse so that Chase could get them.
Last edited by Turbo29 on Sat Oct 20, 2018 11:36 am, edited 2 times in total.

User avatar
vineviz
Posts: 1983
Joined: Tue May 15, 2018 1:55 pm

Re: Protecting large sums of cash.

Post by vineviz » Sat Oct 20, 2018 11:35 am

Broken Man 1999 wrote:
Sat Oct 20, 2018 9:29 am
Brokered CDs via Vanguard Brokerage could allow plenty of headroom for massive amounts invested.

Not that I will ever need so much coverage.

Broken Man 1999
With a brokered CD, I’m pretty sure the broker is insured party. Not the investor.

This might be moot, since I suppose the investor is trusting the broker to begin with, but I don’t think the investor has any direct recourse to the FDIC.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

Turbo29
Posts: 178
Joined: Tue May 01, 2018 7:12 am

Re: Protecting large sums of cash.

Post by Turbo29 » Sat Oct 20, 2018 11:39 am

vineviz wrote:
Sat Oct 20, 2018 11:35 am
Broken Man 1999 wrote:
Sat Oct 20, 2018 9:29 am
Brokered CDs via Vanguard Brokerage could allow plenty of headroom for massive amounts invested.

Not that I will ever need so much coverage.

Broken Man 1999
With a brokered CD, I’m pretty sure the broker is insured party. Not the investor.

This might be moot, since I suppose the investor is trusting the broker to begin with, but I don’t think the investor has any direct recourse to the FDIC.

Here's the info on that:

https://www.fdic.gov/consumers/consumer ... okers.html
Make sure all of your deposit will be fully insured. To protect your brokered CD from loss if the bank fails, follow these steps to confirm that your money is placed in a properly titled deposit account at an FDIC-insured bank and that all of it is within the deposit insurance limits. First, get the name of the bank where your money is to be deposited and verify that it is FDIC-insured by calling the FDIC toll-free at 1-877-275-3342 or searching BankFind, the FDIC’s database of insured institutions at http://research.fdic.gov/bankfind.

Second, ask your broker to confirm that the deposit account records for its brokered CDs reflect the broker’s role as an agent for its clients (for instance, by titling the account “XYZ Brokerage, as Custodian for Clients”). That way, each client who owns the CD can qualify for up to at least $250,000 in deposit insurance. This coverage is generally referred to as “pass-through” insurance because it bypasses the broker and is calculated based on the ownership interests of the individual depositors.

Also with pass-through insurance, a consumer’s brokered deposits are added to any traditional deposits he or she has at the same bank for purposes of calculating coverage. So, if your combined brokered and traditional deposits at a single bank exceed $250,000, you should call the FDIC to discuss your coverage.

ribonucleic
Posts: 76
Joined: Mon Feb 13, 2017 6:07 pm

Re: Protecting large sums of cash.

Post by ribonucleic » Sat Oct 20, 2018 12:18 pm

Turbo29 wrote:
Sat Oct 20, 2018 11:32 am
About three weeks prior I had done a push ACH from another bank to WaMu. They would not show the funds as available and the phone rep said it was their policy to hold them for five days (even on push ACH's). I finally got exasperated and asked, "You know why your bank is paying such high interest don't you? It it because it is going to collapse soon." She protested, "No sir, we are very strong." I replied, "No you are not" and ended the call. I had no special knowledge of what was to come before the end of the month, I was just angry.

I always wondered if the rep remembered that conversation when they did collapse.
I'm a phone rep for an equally large corporation. It's not a financial institution, but I regularly have to address funds availability complaints.

Venting your frustration on the person you spoke with accomplished nothing except closing off whatever small chance there might have been of their helping to arrange some courtesy exception to a company policy decided at least three corporate levels above them.

And assuming they lost their job in the bankruptcy, they had more pressing concerns than rueing the accuracy of your bitter prophecy.

sport
Posts: 7383
Joined: Tue Feb 27, 2007 3:26 pm
Location: Cleveland, OH

Re: Protecting large sums of cash.

Post by sport » Sat Oct 20, 2018 12:36 pm

Turbo29 wrote:
Sat Oct 20, 2018 11:39 am
Second, ask your broker to confirm that the deposit account records for its brokered CDs reflect the broker’s role as an agent for its clients (for instance, by titling the account “XYZ Brokerage, as Custodian for Clients”). That way, each client who owns the CD can qualify for up to at least $250,000 in deposit insurance. This coverage is generally referred to as “pass-through” insurance because it bypasses the broker and is calculated based on the ownership interests of the individual depositors.
Do we know if Vanguard brokered CDs meet this requirement?

Turbo29
Posts: 178
Joined: Tue May 01, 2018 7:12 am

Re: Protecting large sums of cash.

Post by Turbo29 » Sat Oct 20, 2018 12:41 pm

ribonucleic wrote:
Sat Oct 20, 2018 12:18 pm
Turbo29 wrote:
Sat Oct 20, 2018 11:32 am
About three weeks prior I had done a push ACH from another bank to WaMu. They would not show the funds as available and the phone rep said it was their policy to hold them for five days (even on push ACH's). I finally got exasperated and asked, "You know why your bank is paying such high interest don't you? It it because it is going to collapse soon." She protested, "No sir, we are very strong." I replied, "No you are not" and ended the call. I had no special knowledge of what was to come before the end of the month, I was just angry.

I always wondered if the rep remembered that conversation when they did collapse.
I'm a phone rep for an equally large corporation. It's not a financial institution, but I regularly have to address funds availability complaints.

Venting your frustration on the person you spoke with accomplished nothing except closing off whatever small chance there might have been of their helping to arrange some courtesy exception to a company policy decided at least three corporate levels above them.

And assuming they lost their job in the bankruptcy, they had more pressing concerns than rueing the accuracy of your bitter prophecy.
I do understand that.

I am also wondering if the funds holds on ACH transfers originated at another bank was an attempt by WaMu to stay afloat. It seems that they were hemorrhaging funds in the weeks leading up to their collapse. I say that because they had never placed holds in the past. The rep could not explain why they were all of the sudden doing it when they had not done it before.

Perhaps this type of treatment of the depositors contributed to the funds outflow and hastened their demise.

User avatar
Phineas J. Whoopee
Posts: 7559
Joined: Sun Dec 18, 2011 6:18 pm

Re: Protecting large sums of cash.

Post by Phineas J. Whoopee » Sun Oct 21, 2018 12:38 pm

MathWizard wrote:
Sat Oct 20, 2018 9:37 am
...
WaMu (Washington Mutual) during the financial crisis. This was less than 10 years ago.
I have personal experience, as a Washington Mutual customer at the time. The FDIC, as it does, brokered a sale of the retail deposit business to J.P. Morgan Chase, which out of its own funds and the acquired assets made good not only on insured deposits, but on uninsured ones as well. It was a good deal for them, and significantly boosted their business.

Bank failure doesn't necessarily mean the bank has zero assets. It just means it doesn't have enough to meet regulatory requirements. The remaining assets may well be enough to cover all insured deposits. Even if they aren't, the FDIC is only on the hook for the difference.

It is not the case that the FDIC needs enough to replace every last insured deposit in every last one of more than 6000 US banks.

The main purpose of the FDIC is to increase confidence in the banking system as a whole, so small problems (like one bank failure) are less likely to snowball into large problems. Even during last decade's financial crisis I'm not aware of anybody losing anything from insured deposits.

PJW

User avatar
dm200
Posts: 18742
Joined: Mon Feb 26, 2007 2:21 pm
Location: Washington DC area

Re: Protecting large sums of cash.

Post by dm200 » Sun Oct 21, 2018 12:47 pm

aqan wrote:
Sat Oct 20, 2018 9:02 am
This topic keeps coming up here a lot. Just wondering when was the last time someone actually needed FDIC protection?
Don’t flame me, I’m not saying you should not care about it, just trying to put a perspective in my head.
I was the part-time manager of an organization for many years that held a lot of CDs. Most were Vanguard brokered CDs with FDIC insured banks. When the FDIC limit was $100k, we held CDs at Indymac when it failed. Without FDIC coverage, we would have lost a significant amount. Since we had $100k, we lost nothing.

When the FDIC limit was $250k, we held over $500k at three FDIC insured banks in Puerto Rico. All three failed on the same day. We lost nothing because we held less than $250k at any one.

User avatar
dm200
Posts: 18742
Joined: Mon Feb 26, 2007 2:21 pm
Location: Washington DC area

Re: Protecting large sums of cash.

Post by dm200 » Sun Oct 21, 2018 12:48 pm

sport wrote:
Sat Oct 20, 2018 12:36 pm
Turbo29 wrote:
Sat Oct 20, 2018 11:39 am
Second, ask your broker to confirm that the deposit account records for its brokered CDs reflect the broker’s role as an agent for its clients (for instance, by titling the account “XYZ Brokerage, as Custodian for Clients”). That way, each client who owns the CD can qualify for up to at least $250,000 in deposit insurance. This coverage is generally referred to as “pass-through” insurance because it bypasses the broker and is calculated based on the ownership interests of the individual depositors.
Do we know if Vanguard brokered CDs meet this requirement?
I think so, if I understand the question.

garlandwhizzer
Posts: 2013
Joined: Fri Aug 06, 2010 3:42 pm

Re: Protecting large sums of cash.

Post by garlandwhizzer » Sun Oct 21, 2018 2:07 pm

Short term Treasuries and T Bills work for safety and security.

Garland Whizzer

User avatar
whodidntante
Posts: 4145
Joined: Thu Jan 21, 2016 11:11 pm

Re: Protecting large sums of cash.

Post by whodidntante » Sun Oct 21, 2018 2:37 pm

Treasuries held directly are a good option. You can use T-bills or note ladders to manage term risk. You can also use ultrashort ETFs on the short end if you want. https://www.etf.com/GBIL#overview

ICH
Posts: 95
Joined: Wed Jun 13, 2018 3:08 am

Re: Protecting large sums of cash.

Post by ICH » Mon Oct 22, 2018 5:57 am

aqan wrote:
Sat Oct 20, 2018 9:02 am
This topic keeps coming up here a lot. Just wondering when was the last time someone actually needed FDIC protection?
Don’t flame me, I’m not saying you should not care about it, just trying to put a perspective in my head.
I was just going through the below link the other day. 8 bank failures in 2017! https://www.fdic.gov/bank/historical/bank/index.html

AlohaJoe
Posts: 3817
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: Protecting large sums of cash.

Post by AlohaJoe » Mon Oct 22, 2018 6:13 am

airahcaz wrote:
Sat Oct 20, 2018 8:25 am
There’s only so many bank accounts one can open.
Why is there only so many?

My brokerage automatically opens up accounts at multiple FDIC institutions for me, meaning I am insured for $2.75 million without doing anything at all. They manage it all behind the scenes using an advanced technology called computers.

Maybe you need to use a better bank/broker?

Grt2bOutdoors
Posts: 19289
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Protecting large sums of cash.

Post by Grt2bOutdoors » Mon Oct 22, 2018 6:21 am

AlohaJoe wrote:
Mon Oct 22, 2018 6:13 am
airahcaz wrote:
Sat Oct 20, 2018 8:25 am
There’s only so many bank accounts one can open.
Why is there only so many?

My brokerage automatically opens up accounts at multiple FDIC institutions for me, meaning I am insured for $2.75 million without doing anything at all. They manage it all behind the scenes using an advanced technology called computers.

Maybe you need to use a better bank/broker?
Seeing as this is a “learning” forum it may just be that OP is unaware of the various options to protect large sums of liquidity.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

User avatar
dm200
Posts: 18742
Joined: Mon Feb 26, 2007 2:21 pm
Location: Washington DC area

Re: Protecting large sums of cash.

Post by dm200 » Mon Oct 22, 2018 9:53 am

AlohaJoe wrote:
Mon Oct 22, 2018 6:13 am
airahcaz wrote:
Sat Oct 20, 2018 8:25 am
There’s only so many bank accounts one can open.
Why is there only so many?

My brokerage automatically opens up accounts at multiple FDIC institutions for me, meaning I am insured for $2.75 million without doing anything at all. They manage it all behind the scenes using an advanced technology called computers.

Maybe you need to use a better bank/broker?
There are several thousand banks and many thousands of federally insured credit unions in the US.

JackoC
Posts: 259
Joined: Sun Aug 12, 2018 11:14 am

Re: Protecting large sums of cash.

Post by JackoC » Mon Oct 22, 2018 10:27 am

AlohaJoe wrote:
Mon Oct 22, 2018 6:13 am
airahcaz wrote:
Sat Oct 20, 2018 8:25 am
There’s only so many bank accounts one can open.
My brokerage automatically opens up accounts at multiple FDIC institutions for me, meaning I am insured for $2.75 million without doing anything at all. They manage it all behind the scenes using an advanced technology called computers.
Do you mean buying brokered CD's? Or is there some service that opens accounts at the highest paying offers on a direct basis. If somebody would do that for a small enough fee, and particularly if they'd jump around opening and closing savings accounts as different ones became highest paying, I'd be interested.

Otherwise I haven't found it that onerous to have a fairly large number of direct CD accounts with different bank/CU's that I manage myself. But lately money market funds (like settlement fund at Vanguard VMFXX and other funds there might be viewed slightly superior) are again competitive with all but the very top savings account offers, which may quickly become not best after the next rate hike, so we've scaled back on savings/MM accounts at bank/CU's to just two (for a little operational redundancy).

User avatar
dm200
Posts: 18742
Joined: Mon Feb 26, 2007 2:21 pm
Location: Washington DC area

Re: Protecting large sums of cash.

Post by dm200 » Mon Oct 22, 2018 10:37 am

While there certainly are risks with bank or credit union deposits above the Federal insurance limit, keep in mind:

1. Federally insured bank and credit union failures are very infrequent;

2. Even if a bank or credit union fails, usually depositors only lose a fraction of their deposits

AlohaJoe
Posts: 3817
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: Protecting large sums of cash.

Post by AlohaJoe » Mon Oct 22, 2018 6:22 pm

JackoC wrote:
Mon Oct 22, 2018 10:27 am
AlohaJoe wrote:
Mon Oct 22, 2018 6:13 am
airahcaz wrote:
Sat Oct 20, 2018 8:25 am
There’s only so many bank accounts one can open.
My brokerage automatically opens up accounts at multiple FDIC institutions for me, meaning I am insured for $2.75 million without doing anything at all. They manage it all behind the scenes using an advanced technology called computers.
Do you mean buying brokered CD's?
Nope, it is just a cash sweep: https://www.interactivebrokers.com/en/index.php?f=27462

smectym
Posts: 230
Joined: Thu May 26, 2011 5:07 pm

Re: Protecting large sums of cash.

Post by smectym » Mon Oct 22, 2018 10:50 pm

mpsz wrote:
Sat Oct 20, 2018 9:58 am
People have mentioned CDARS. There is a sister product called ICS (Insured Cash Sweep) that works the same way but is a demand deposit: https://www.insuredcashsweep.com/

Basically, these sweep your deposits to other banks where they are held on your behalf and each sweep bank comes with an additional $250k in FDIC coverage. You only deal with the primary bank.

Fidelity's Cash Management account works in a similar way.
I’ll be interested to hear other perspectives, especially from people who have actually used CDARS; but whenever I’ve looked at it I’ve noted that the covered assets generally earn a non-competitive rate of interest. In essence the CDARS client pays for the servuce by forfeiting potentially more competitive interest in return for the privilege of gaining FDIC insurance on a large pot of money.

In which case it would seem the better move for most would be direct investment in Treasury securities

Smectym

Post Reply