Issue 15 • August 2008 

August Newsletter

Understanding the basics of FDIC protection with banks vs. SIPC coverage with investment accounts.

Bank failures or the potential for them have gotten a lot of coverage in the press lately. Understanding the basics of how much cash protection you have may alleviate some concerns.

FDIC is a government created entity that protects depositors against the loss of their deposits if an FDIC insured bank or savings association fails.

However, the protection is not unlimited: All single accounts owned by the same person at the same insured bank are added together and the total is insured up to $100,000. (think: checking + savings + CD)

A husband and wife would each get the $100,000 individual protection as long as the accounts were divided evenly.


john doe & jane doe joint acct: $100,000

john doe account: $50,000

jane doe account: $50,000

What do I do if there is more than the insured amount?

There are a couple of work arounds for higher deposits:

  • make the accounts "POD" or payable on death and list beneficiaries. Each beneficiary listed is entitled to $100,000 in FDIC insurance.
  • speak with your banker about a sweep account, where they take all excess monies each night and sweep them into a overnight repo backed by treasuries.
  • Look into the CDARS program with allows you to deposit all of your money into one institution and they divide your funds up with multiple banks and CD's so that you just deal with one bank instead of many.

So what about my investment accounts and IRA's?

Brokerage companies are not FDIC insured entities, so a different form of insurance comes into play: SIPC. With SIPC coverage, the participating brokerage companies customers are protected up to $500,000 per client if the securities are stolen or the brokerage company fails. ($500,000 total per client with up to $100,000 cash coverage per client)

What about larger retirement accounts? Many investment companies purchase their own "excess" policies in addition to the SIPC coverage.

TD Ameritrade, that custodians all The Advisory Firm client accounts offers each client an additional $250 Million in coverage with up to $900,000 in cash coverage per client.


I hope this clarified a bit more the differences, If you have questions don't hesitate to email or phone.

James A. Daniel,

This newsletter if for informational purposes only. The information contained within should not be considered as financial advice nor soliciation for financial services. Consult with your financial professional if you have any questions.

The Advisory Firm, LLC is a fee-only financial planning company and registered investment advisor.

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