Last week’s news was full of reports of two major bank failures: Silicon Valley Bank and Signature Bank. These bank failures have resulted in the Federal Government taking extraordinary action, and the FDIC stepping in to guarantee all deposits for these two banks in hopes of calming fears and avoiding further “bank runs” where depositors seek to extract all their money from banks.
THE WHY
The Federal Reserve, as we know, has been raising interest rates at an unprecedented speed, which has caused reactions across the stock and bond markets, and the conditions are such that some excesses or lack of risk controls are starting to show up. While these two bank failures may not be the only ones this year, we feel that our banking system adopted many risk management measures after lessons learned after the Great Recession of 2008-09. During this time, the government developed tools to step in if necessary to maintain healthy functioning of our banking system.
THE BASIC RULES
Do not hold more than FDIC limits in a single bank. The standard limit is $250,000 per depositor, per ownership category, per FDIC-insured bank. For more information on how FDIC limits work, watch the following video and feel free to contact your Bridgeworth advisor: https://youtu.be/i27z3VluaUo.
If you choose to own Certificates of Deposit (CDs), it is important to diversify these to stay below the FDIC limits. At Bridgeworth, we can help you accomplish this and spread your CDs across various institutions inside of one account to maximize your FDIC coverage. We would not recommend holding above FDIC limits.
THE SIPC – NOT THE FDIC
Lastly, recognize that your investments, held at a custodian such as Charles Schwab or LPL Financial, are not under FDIC but are covered by the Securities Investor Protection Corporation (SIPC). Importantly, investments are segregated assets held in the investors’ names at the broker-dealer and are not commingled with any bank. For more information on the SIPC, watch the following: https://youtu.be/mbisDzlIbY4.
As the old saying goes, “I’m not as concerned about the return on my money as the return of my money.”At Bridgeworth, this is not an overlooked sentiment. It is why we start our client conversations with an understanding of their financial plan and a clear time horizon before we embark on investment recommendations. The decisions on how much money is kept on hand in cash (checking accounts), how much is held in savings accounts, Money Markets, or CDs, and how much is invested toward long-term goals are critical choices. Often events like we’ve seen this week heighten our attention to some of these basic rules. If you have questions or would like the input of a Bridgeworth advisor, please reach out to us.
Bridgeworth Wealth Management is a Registered Investment Adviser.
The FDIC insures deposits only. For the purposes of FDIC insurance coverage limits, all depository assets of the accountholder at the institution that issued the CD will generally be counted toward the aggregate limit (usually $250,000) for each applicable category of account. FDIC does not insure securities, mutual funds, or similar types of investments that banks and thrift institutions may offer. FDIC insurance does not cover market losses. For details on FDIC insurance limits, see www.FDIC.gov.
Securities Investors Protection Corporation (SIPC) – Securities you own, including mutual funds that are held for your account by a broker, or a bank’s brokerage subsidiary, are not insured against loss in value. The value of your investments can go up or down depending on the demand for them in the market. The Securities Investors Protection Corporation (SIPC), a non-government entity, replaces missing stocks and other securities in customer accounts held by SIPC member firm up to $500,000, including up to $250,000 in cash, if the firm fails. For more information, see www.sipc.org.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not ensure against market risk. This content does not constitute legal, tax, accounting, financial, or investment advice. Any discussion pertaining to taxes in this communication may be part of a promotion or marketing efforts. As provided for in government regulations, advice related to federal taxes that is contained in this communication is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue code. You are encouraged to consult with competent legal, tax, accounting, financial, or investment professionals based on your specific circumstances.
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