FDIC/SPIC insurance for brokerage account

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sil2017
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FDIC/SPIC insurance for brokerage account

Post by sil2017 »

I have a Vanguard account and realized that in my IRA, I have over 500k in the Federal money market plus my stocks. With the way the economy is heading, I decided to read up on FDIC and SPIC insurance just in case a brokerage firm goes belly up.

Am I covered up to 500k in my Vanguard IRA account including cash and stocks or just cash (money market)?

Also, I have a TD ameritrade (IRA Roth, IRA traditional, and Individual brokerage account)account.

Am I covered for 500k from each of the 3 accounts at TdAmeritrade? If so, is the 500k SPIC ( I think) per account and including money market and stocks?

I also have very little cash in Etrade and Fidelity account, both individual brokerage, and a Charles Schwab brokerage and checking account.

I will have 1.2 Million in my bank account next month and only 250k will be insured by FDIC. Where is the safest place to allocate the rest of the money so I am insured? Charles Schwab, Tdameritrade, Fidelity , Etrade?? or open another bank...I only have one bank.
ShadowCat
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Re: FDIC/SPIC insurance for brokerage account

Post by ShadowCat »

I dont know enough about SIPC, so I'll let others answer that. But for your bank account, you have four options to increase your FDIC limits:

1) Open up more more accounts at new banks since FDIC is $250,000 per person per account as you have pointed out (multiple accounts at the same institution count as one account). This is probably the easiest path of getting more FDIC coverage, but would require you to establish new banking relations with multiple other banks.

2) Open up more accounts at your existing bank, but put different and/or joint owners. For example, a savings account with $250,000 in Bob's name, a second savings account at the same bank for $250,000 in Jane's name, and a third savings account for $500,000 held in a joint account (both Bob and Jane as joint owners) also held at the same institution receives maximum FDIC protection since "Bob", "Jane", and "Bob and Jane" are all considered different "per person's" for the purposes of FDIC limits and thus get full FDIC protection. Note that a joint account receives $500,000 protection since it is assumed that each owner owns half of it.

Are you married? If so, this may be an option for you and your spouse to get up to $1 million in FDIC coverage without having to establish relations with a new bank.

3) Open up a "cash management" account at a brokerage firm, like Fidelity. This would superficially appear to be a single checking/savings account to you, but in fact your brokerage firm opens up bank accounts behind the scenes and places your money strategically to maximize FDIC coverage. With Fidelity for example, they will open up to 5 bank accounts and sweep your money to those accounts to give you up to $1.25 million in FDIC coverage.

However, be careful: if they sweep to a bank where you already have an account, then the protection wont apply. For example, if you have $250,000 in a savings account with Bank of America, and your brokerage cash management account chooses Bank of America as one of the banks they sweep to, then that money doesn't receive any FDIC protection since under federal law your $250,000 already at Bank of America would count against the limit of any money swept to a Bank of America account by your brokerage firm.

4) Establish a revocable trust. The revocable aspect allows you to access the money easily, but for each beneficiary you establish the funds are protected up to $250,000. I know Ally Bank has a very easy way to set this up online and from your vantage point it would basically function as a savings account. The only difference is that if you die, it goes to the named beneficiaries. Since it is revocable though, you can revoke it at any time.

Those would be my four recommendations. Actually, I do have a fifth one and please don't take this the wrong way but perhaps you can reduce your cash holdings? Why exactly do you need $1.2 million in cash or cash equivalents?
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David Jay
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Re: FDIC/SPIC insurance for brokerage account

Post by David Jay »

sil2017 wrote: Sat Nov 21, 2020 8:50 am... just in case a brokerage firm goes belly up.
Brokerage firms do not hold your assets. The assets are held by a third-party trustee.

If the brokerage firm closes, the assets still exist and are held for your benefit.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
MikeG62
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Re: FDIC/SPIC insurance for brokerage account

Post by MikeG62 »

sil2017 wrote: Sat Nov 21, 2020 8:50 am I have a Vanguard account and realized that in my IRA, I have over 500k in the Federal money market plus my stocks. With the way the economy is heading, I decided to read up on FDIC and SPIC insurance just in case a brokerage firm goes belly up.

Am I covered up to 500k in my Vanguard IRA account including cash and stocks or just cash (money market)?

Also, I have a TD ameritrade (IRA Roth, IRA traditional, and Individual brokerage account)account.

Am I covered for 500k from each of the 3 accounts at TdAmeritrade? If so, is the 500k SPIC ( I think) per account and including money market and stocks?

I also have very little cash in Etrade and Fidelity account, both individual brokerage, and a Charles Schwab brokerage and checking account.

I will have 1.2 Million in my bank account next month and only 250k will be insured by FDIC. Where is the safest place to allocate the rest of the money so I am insured? Charles Schwab, Tdameritrade, Fidelity , Etrade?? or open another bank...I only have one bank.
OP, it won't be insured if at a broker (unless you are holding Treasuries, which yield almost nothing).

See here for the details of what SPIC covers and what it does NOT cover:

https://www.sipc.org/for-investors/what ... securities.


"SIPC protects against the loss of cash and securities – such as stocks and bonds – held by a customer at a financially-troubled SIPC-member brokerage firm. The limit of SIPC protection is $500,000, which includes a $250,000 limit for cash. Most customers of failed brokerage firms are protected when assets are missing from customer accounts.

SIPC protection is limited. SIPC only protects the custody function of the broker dealer, which means that SIPC works to restore to customers their securities and cash that are in their accounts when the brokerage firm liquidation begins.

SIPC does not protect against the decline in value of your securities
."
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Marseille07
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Re: FDIC/SPIC insurance for brokerage account

Post by Marseille07 »

TD Ameritrade is virtually risk-free, for they're being acquired by Charles Schwab. Even in a remote possibility of TD Ameritrade running into financial trouble (no sign of that), Charles Schwab doing nothing and letting them fail is unthinkable.
Topic Author
sil2017
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Re: FDIC/SPIC insurance for brokerage account

Post by sil2017 »

Marseille07 wrote: Sat Nov 21, 2020 10:32 am TD Ameritrade is virtually risk-free, for they're being acquired by Charles Schwab. Even in a remote possibility of TD Ameritrade running into financial trouble (no sign of that), Charles Schwab doing nothing and letting them fail is unthinkable.
Oh...didn't realize that Charles Schwab is aquiline TD ameritrade. When will this happen?
I have both Charles Schwab brokerage and interest checking account and Td ameritrade Roth IRA, Traditional IRA and individual brokerage account.

Do you know if my TD ameritrade individual brokerage account asset and cash will just be added to my existing Charles Schwab brokerage account?
Topic Author
sil2017
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Re: FDIC/SPIC insurance for brokerage account

Post by sil2017 »

ShadowCat wrote: Sat Nov 21, 2020 9:44 am

Those would be my four recommendations. Actually, I do have a fifth one and please don't take this the wrong way but perhaps you can reduce your cash holdings? Why exactly do you need $1.2 million in cash or cash equivalents?
1.2 Million will be cash proceeds from my house sale. I have about 750k in cash equivalency outside of the house sale....don't know what to do with it as of now so just keeping in cash.

What would you suggest I do with the amount of cash and cash equivalency?
Marseille07
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Re: FDIC/SPIC insurance for brokerage account

Post by Marseille07 »

sil2017 wrote: Sat Nov 21, 2020 10:38 am
Marseille07 wrote: Sat Nov 21, 2020 10:32 am TD Ameritrade is virtually risk-free, for they're being acquired by Charles Schwab. Even in a remote possibility of TD Ameritrade running into financial trouble (no sign of that), Charles Schwab doing nothing and letting them fail is unthinkable.
Oh...didn't realize that Charles Schwab is aquiline TD ameritrade. When will this happen?
I have both Charles Schwab brokerage and interest checking account and Td ameritrade Roth IRA, Traditional IRA and individual brokerage account.

Do you know if my TD ameritrade individual brokerage account asset and cash will just be added to my existing Charles Schwab brokerage account?
I don't know the exact date but it's soon, initially said to be 2H 2020 (right now) but the covid situation might be delaying it. As far as your account, they'll let you know what happens - my guess is accounts would remain separate, as was the case when I got migrated from Scottrade to TD Ameritrade.
epictetus
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Re: FDIC/SPIC insurance for brokerage account

Post by epictetus »

here is some info i hope you will find useful re: how Fidelity handles this.

looks like there are ways to work with the fdic coverage.

and they have apparently bought additional insurance to supplement spic limits.

https://www.fidelity.com/why-fidelity/s ... r-accounts
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Topic Author
sil2017
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Re: FDIC/SPIC insurance for brokerage account

Post by sil2017 »

epictetus wrote: Sat Nov 21, 2020 2:08 pm here is some info i hope you will find useful re: how Fidelity handles this.

looks like there are ways to work with the fdic coverage.

and they have apparently bought additional insurance to supplement spic limits.

https://www.fidelity.com/why-fidelity/s ... r-accounts
Thanks...sounds like a good idea. I already have a Fidelity account which I haven't used for years.
ShadowCat
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Re: FDIC/SPIC insurance for brokerage account

Post by ShadowCat »

sil2017 wrote: Sat Nov 21, 2020 10:40 am
ShadowCat wrote: Sat Nov 21, 2020 9:44 am

Those would be my four recommendations. Actually, I do have a fifth one and please don't take this the wrong way but perhaps you can reduce your cash holdings? Why exactly do you need $1.2 million in cash or cash equivalents?
1.2 Million will be cash proceeds from my house sale. I have about 750k in cash equivalency outside of the house sale....don't know what to do with it as of now so just keeping in cash.

What would you suggest I do with the amount of cash and cash equivalency?
That's a difficult question to answer since that would be determined by your investment goals and time frame. Not to sound cliché, but my answer would be "to invest it" in some combination of equity and bond funds. But you aren't asking for investment advice and so to answer your literal question of how to maximize FDIC, I would recommend one of the four options I mentioned before.

In another post in this thread you state that you already have a Fidelity account. If you already have a relationship with them, then opening up a cash management account with them and then just dumping the $1.2 million in full into the account will give you full FDIC protection due to sweeps as I mentioned in my post and as another poster has linked to in this thread. You could probably even call Fidelity and tell them what other banks you have cash at so that they don't choose those particular banks as sweep options.

I think Fidelity's cash management would be the easiest way of getting maximum FDIC insurance for $1.2 million. Hopefully that gives you peace of mind and breathing room while you decide where to invest the money. Keep in mind though that the interest earned on the cash management balance is nearly nothing, so you'll have maximum security but no real earnings.

Hope that helps!
Topic Author
sil2017
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Re: FDIC/SPIC insurance for brokerage account

Post by sil2017 »

Thanks . Will have it in Fidelity cash for now.
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