Amid bank failures, savers look to stretch deposit protection beyond $250,000


After two banks failed within the past few days, wealthy individuals and business owners with hefty cash balances are looking to push the limits of federal deposit insurance coverage. 

“Our phones are ringing off the hook,” said Frank Bonanno, managing director and head of marketing at StoneCastle Cash Management, which works with financial advisers and a network of more than 900 banks to maximize deposit insurance coverage as well as interest rates on cash balances. The firm has received hundreds of new account applications in the past few days, Bonanno said. 

At MaxMyInterest, which also helps customers spread their cash across multiple banks and earn above-market rates, site traffic in the past few days has been five to 10 times its normal level, said CEO Gary Zimmerman. 

For savers with large cash balances, the failure in recent days of Silicon Valley Bank
and Signature Bank
has raised new questions about the limits and significance of Federal Deposit Insurance Corp. coverage. Each depositor at an insured bank generally gets up to $250,000 of coverage per account ownership category–individual and joint accounts, for example, are separate categories. Yet a large chunk of deposits at the two failed banks were beyond those limits. Depositors in both banks will be fully protected, the FDIC, U.S. Treasury Department and Federal Reserve said in a statement yesterday.   

Although customers with balances beyond the FDIC limits are being made whole in this instance, savers shouldn’t count on that happening the next time a bank blows up, financial planners say. Silicon Valley Bank, for example, had a unique clientele that was “loud and forceful in advocating for themselves,” said Ben Henry-Moreland, owner of Freelance Financial Planning in Omaha, Neb. “I wouldn’t stake $10 million of cash on the idea that the government will keep doing this for every bank that fails in the future.” 

In fact, the banks’ recent troubles “show that there has always been risk for those who go over the FDIC limits, and it very much makes sense to ensure that your deposits are within” those limits, said Ken Tumin, senior industry analyst at LendingTree.  

Among many customers of SVB and Signature, the availability of additional deposit insurance coverage may have been overlooked. Both banks were participants in the IntraFi network, which allows customers with high cash balances to spread their cash among multiple institutions and stay within FDIC limits, according to a person familiar with IntraFi. SVB and Signature “could have taken advantage of this program more if they wanted to, and they didn’t,” this person said. At Signature Bank, about 90% of total deposits were not FDIC-insured as of year-end 2022, according to the company’s most recent annual report. Signature and SVB did not respond to requests for comment. 

People with deposits exceeding the FDIC limits can address the issue by spreading their cash among multiple banks–but that tends to be a cumbersome process. If they bank with one of the thousands of institutions in IntraFi’s network, they can also ask about additional deposit insurance coverage, and the bank will swap deposits with other network institutions to ensure the customer’s cash is fully insured. IntraFi’s services, however, are focused more on safety and less on optimizing interest rates. 

Other services aim to expand customers’ FDIC coverage while also offering higher rates. MaxMyInterest, for example, simplifies the process of opening multiple bank accounts and allocating cash across those accounts to stay within FDIC limits while earning a decent yield. The company currently offers a top rate of 5.01% and charges fees of 0.04% per quarter, Zimmerman said. 

StoneCastle, meanwhile, doesn’t offer its service directly to retail customers, but people working through advisors can have their cash allocated across multiple banks and earn a current rate of 4.16%, Bonanno said. 

One cash-management service that was exposed to a failed bank says it saw no disruption. At Flourish, a subsidiary of MassMutual, customers working through financial advisers can access expanded FDIC coverage and current rates up to 4.25%. Flourish works with a network of eight or nine banks–and one of those banks was Signature, said Flourish president Ben Cruikshank. But “our clients had zero disruption, complete access to funds, and nothing has changed about Flourish services from Friday to today,” Cruikshank said Monday. All money that was allocated to Signature has been shifted to other banks in the program, he said. “We see somewhat heightened deposit and withdrawal activity today,” he said, “and it nets out to a pretty normal day for us.”  




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