As Credit Suisse, Signature Bank Collapse, Is Your Money Protected? Are Your Investments Safe?

The failures of U.S. banks SVB Financial Group, Signature Bank (NASDAQ:SBNY) and Silvergate Capital Corp (NYSE:SI), as well as the emergency takeover of Credit Suisse Group AG (NYSE:CS) by UBS Group AG (NYSE:UBS) over the weekend, has bank customers and investors understandably worried about the safety of their savings and assets.

For U.S. bank users and retirement investors, here's what you need to know about the safety of your assets.

Is My Cash Safe In U.S. Banks? Most U.S. banks are insured by the Federal Deposit Insurance Corporation (FDIC), which generally provides up to $250,000 of coverage per person, per bank. To verify your bank is covered by the FDIC, check their website here.

Basic FDIC insurance covers all deposits held at an insured bank, including deposits in checking accounts, savings accounts, money market deposit accounts (MMDA), certificates of deposits (CD), and negotiable orders of withdrawal (NOW) accounts. It also covers official items issued by insured banks, such as cashier's checks or money orders.

FDIC insurance typically does not cover any deposits at a single bank over $250,000. It also does not cover stock investments, bond investments, mutual funds, life insurance policies, annuities, municipal securities, safe deposit boxes, U.S. treasuries or cryptocurrencies.

What About The Failed Banks? Fortunately for customers of Silicon Valley Bank and Signature Bank, the Biden administration has stepped in to insure all deposits held at both banks, even those above the $250,000 FDIC limit. Last week, Treasury Secretary Janet Yellen said Americans should not assume that assets beyond the typical $250,000 FDIC insurance cap will be protected if additional banks fail in the coming weeks.

Are My Retirement Investments Insured? Stocks, bonds and other investments do not qualify for FDIC insurance, but they are protected by the Securities Investor Protection Corporation (SIPC). The SIPC does not protect against investments in your retirement account losing value, but it does protect against you losing your investments altogether.

For example, if you own 100 shares of Robinhood Markets Inc (NASDAQ:HOOD) in an investment account at Charles Schwab Corporation Common Stock (NYSE:SCHW) and Robinhood collapses and the stock drops to $0, your investment losses will not be covered by SIPC. However, if Charles Schwab fails, SIPC coverage will ensure you keep your Robinhood shares.

SIPC coverage is limited to $500,000 for securities (stocks, bonds, etc) and $250,000 for cash per "separate capacity" per SIPC-member brokerage firm.

Examples of separate capacities are:
individual account
joint account
an account for a corporation
an account for a trust created under state law
an individual retirement account
a Roth individual retirement account
an account held by an executor for an estate
an account held by a guardian for a ward or minor.

SPIC protects up to $500,000 in securities and $250,000 in cash for each of the accounts listed above. For example, if you have a Roth account and an IRA account at the same brokerage, you would qualify for $500,000 in SPIC coverage for each account for a total of $1 million in coverage.

If you have investment accounts at different brokerage firms, each account has separate SIPC protection.

It's important to note that SIPC coverage applies on a per-account basis. "Protection is limited to the amounts available with respect to a single account… SIPC protection is not available separately for the individual participants in the 401(k) plan," the SIPC says on its website.

However, if a company with a 401(k) plan files for bankruptcy, the Employee Retirement Income Security Act (ERISA) protects the plan's assets and holds them in trust. Assets are also protected if your 401(k) plan administrator goes bankrupt.

How Is My Bank Claiming It Provides More Than $250,000 In FDIC Insurance? Some banks provide customers access to more than $250,000 in FDIC insurance coverage by partnering with unaffiliated FDIC-insured partner banks. By automatically allocating customers' money to a variety of partner banks, a single bank can provide each customer with an additional $250,000 of FDIC coverage per partner bank. For example, Wealthfront provides Wealthfront Cash Account users with up to $2 million in FDIC insurance by automatically allocating deposits among eight FDIC-insured partner banks.

Benzinga's Take: Between the FDIC and SIPC, there is plenty of insurance coverage available for individuals's cash and investments. If you have more than $250,000 in cash or $500,000 in investments, it may be worth looking into opening additional accounts and splitting assets among multiple FDIC and SIPC covered institutions to make sure you are completely safe.

Photo: Unsplash and alex.ch on flickr

HOODRobinhood Markets Inc

$85.90-0.53%

Overview

SBNYSIGNATURE BANK (NY) by Signature Bank (New York, NY)

$0.5000-%

SCHWCharles Schwab Corp

$89.410.16%

SIShoulder Innovations Inc

$17.89-%

UBSUBS Group AG

$46.77-%

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