August 2022 Deposit insurance is a horribly dull topic -- until it isn't. In the wake of the cryptocurrency collapse, many investors who thought their deposits were insured are waking up to the unpleasant discovery that their deposits no longer exist. The topic can be confusing, and a real crisis is so rare that it always comes as a surprise. So what do you need to know to ensure your assets are protected? Banks deposits are covered by the FDIC. Deposits won't vanish unless the U.S. Government collapses. There's no explicit, uniform law preventing non-bank businesses from calling themselves a bank. If you're not absolutely certain that you're making a deposit at a bank, look up the institution at FDIC.GOV. Be skeptical of intermediaries. The now-bankrupt crypto platform Voyager claimed, "Your cash is held by our banking partner, Metropolitan Commercial Bank, which is a member of the FDIC." However, most Voyager customers participated in non-cash deposit programs, and it's unclear whether any customer assets were ever deposited at an actual bank. Unless your deposit takes place directly at a bank holding a valid FDIC certificate, the guarantee is worthless. FDIC deposit coverage is $250,000 per depositor, per bank, per deposit category. That means you can go to 10 different banks and enjoy $2.5 million worth of coverage. It also means a bank can operate under 10 different charters and offer $2.5 million of coverage. It means joint account holders -- a different deposit category -- are both insured to $250,000 for a total of $500,000 plus up to $250,000 held in a single account holder's name. There are a lot of ways to extend coverage far beyond $250,000, and many banks offer helpful tutorials on how to properly title accounts to achieve this outcome. Some non-bank institutions are covered by some form of deposit insurance. Credit unions are covered by the NCUA. Rules are generally the same as the FDIC. Investments held in brokerage accounts are insured by the SIPC. This covers situations where a broker goes bankrupt and securities have disappeared. The SIPC doesn't cover the decline in value of investments, and it isn't a federally-backed organization. Currently, there are two cases pending before the SIPC: Bernard Madoff Investment Securities, and Lehman Brothers. Though defaults are rare, money market mutual funds are not insured. Practically speaking, the government stepped in to guarantee all money-market funds in 2008, and it's generally extended coverage beyond $250,000 in the event of bank failures. But this protection isn't guaranteed. If you are seeking safety for your cash, be wary of abnormally high returns and look for and institution with FDIC backing.
