FDIC Insurance Limits
Silicon Valley Bank, the 16th largest bank in the US, nearly went out of business this past week when there was essentially a run on the bank. Depositors rushed to get their money out, and it caused a liquidity crisis.
At the time I am writing this, a solution is being floated and it seems that all depositors will be made whole. But this wasn’t clear at the beginning of the crisis, because, by most estimates, over 90% of the nearly $200 billion of deposits at SVB were not covered by FDIC insurance.
While this crisis most likely won’t impact you, it’s a good opportunity to refresh your memory on FDIC (Federal Deposit Insurance Corporation) insurance and how it works.
Per their website, “The FDIC protects depositors of insured banks located in the United States against the loss of their deposits if an insured bank fails.”
When you deposit money at a FDIC insured bank, “The standard deposit insurance amount is $250,000 per depositor, per insured bank, for each account ownership category.”
This $250k would double to $500k for a joint account.
So, in very broad terms, if you have a lot of cash that’s sitting at a bank, as long as the bank is FDIC insured and your account balance is below the limit, then even if that bank goes out of business you will still be made whole and not lose any of your money.
If you are over those limits at that one bank institution, then your money over the limit is at risk.
One option would then be to open an account at multiple banks, as your $250k limit is per bank, not based on you as an individual.
I’ve seen companies like Wealthfront come up with novel ways to solve this issue as they partner with multiple banks and then spread your cash out across those banks, without you having to do any of the work. In their case it gives you up to $2 million of FDIC insurance since they spread it over 8 banks.
New Podcast (and a Quote) Part 1
My friends Becky Heptig and Bill Yount just started an excellent podcast called ‘Catching up to FI’ which focuses on those in our community getting a “late start” on the path to FI.
They are off to a great start and I think this is one of the most significant additions to the FI podcasting world in quite some time.
Bill had a quote in the first episode I listened to that really struck me as he was describing his pre-FI life of spending money and not really being aware of where it all went:
“Money flowed through the sieve of life.”
This is a perfect description as it just slips aways without any intentionality.
New Podcast (and a Quote) Part 2
In other important podcasting news, Morgan Housel, the author of ‘The Psychology of Money’, just released the 2nd episode of his new ‘The Morgan Housel Podcast’ and this jumped out to me:
“Financial Advice for my newborn son:
“You might think that you want an expensive car, and a fancy watch, and a huge house, but I’m telling you that you don’t. What you want is respect and admiration from other people and you think that having expensive stuff will bring it. But it almost never does. Especially from the people who you want to respect and admire you.”
“If respect and admiration are your goal, be careful how you seek it. Because humility and kindness and empathy will bring you much more respect than the car that you drive or the home you live in ever will.”
ChooseFI Community Taking Action This Week
- Gavin said, “My 1% better for this week is fully funding my 2023 Roth IRA with $6,500.”
- Anne said, “Did some life admin: Made reminders for tasks to revisit home insurance and broadband costs. Found another pension to transfer to Vanguard. Used my prepaid cash card for stuff, made a document with all details of assets and how to get details at the end of my life. Created memorization details to pass on my digital assets to a nominated person who can access them after my death.”
- Michael said, “My 1% better this week is realizing that I don’t have to be highly productive all the time and it’s ok to not finish everything I start, whether it is a book I am reading or chores I planned to do all in one day. Episode 415 about the book Four Thousand Weeks helped me come to this realization. Thank you for all you and the community do, together we all can live our best lives!”
- Maggie said, “My 1% better was using a surprise raise to cover the increased IRS 401k contribution limit and to automate larger monthly contributions to my 2023 Roth IRA – instead of scrambling at the end of the year to find the money to contribute.”
- Gar said, “My 1% better this week was negotiating a 18% raise, 4 weeks paternity leave, and a paid for MBA from my employer. I kept reading about all these people getting big raises by moving companies or negotiating with their current employers on the FI Weekly and thought it was incredible and too good to be true. Well, I figured I would give it a shot. I applied for a bunch of jobs and got some offers. When I went to talk to my boss and showed him what I was potentially leaving for he immediately matched everything. Our current policy is 1-week paternity leave and he told me I could have 4 and we currently only reimburse $6,000 dollars a year for a master’s degree and I was told they would pay for my entire degree no matter the cost. All of this on top of raising My salary by 18% I was completely shocked! Thanks to the community for giving me the courage to do this!”
- Anthony said, “My wife and I just booked flights for our family of four from Tokyo to Portland in April. Because we had taken advantage of various travel rewards offers through our Chase Sapphire Preferred card, we were able to hop onto a sale with very narrow eligibility. We wound up being able to book our flight for points and taxes, making our out-of-pocket cost to cross the Pacific about $200 for all four of us.”