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With the high-profile blow-up of Silicon Valley Bank due to a massive bank run, Americans may be worrying about money in their own bank, even if they’re not running the same risks. But this bankruptcy should be a wake-up call for Americans to find a safe bank offering higher yields.
“Too often we stay in the same bank accounts for years and years because the chore of switching seems dull and without a payoff,” says Mary Wisniewski, editor-at-large, Cornerstone Advisors, a bank consultancy. “But options improve and we could find something more compelling – something that pays a higher APY or doesn’t charge us monthly fees or, my personal favorite, provides a mobile banking app that’s easy to use and offers helpful features,” she says.
Holding cash in a higher-yielding account can be a great short-term way to earn a return while waiting for the stock market to regain its footing. You’ll get a guaranteed return with no risk. With banks feeling the stress of rapidly rising rates, it could be the perfect time to double-check your accounts for safety and then look to take advantage of today’s higher yields.
Look for safety first, then yield
Your number-one objective when looking for a bank account is safety, as evidenced by banks that are protected by the Federal Deposit Insurance Corp. (FDIC). Only then should you begin looking for a higher yield or other features when selecting your new bank.
“You need to see that FDIC insurance symbol. Full stop,” says Wisniewski. “That’s the most important thing if you’re looking for safety.”
FDIC coverage entitles you to at least $250,000 in protected funds per depositor, per account type per bank. But this coverage has some nuances, meaning your actual coverage could be even more. If you’re an individual, that $250,000 limit means that all your accounts together with that bank – checking, savings and CDs – must fall below that level to receive full coverage.
But things get interesting if you’re married. Not only could your spouse have similar coverage as you as an individual, but the two of you can have joint accounts that qualify for double coverage. Of course, this situation could apply to any two people who have a joint account.
In other words, you and a spouse could qualify for as much as $1 million in FDIC coverage by skillfully dividing your assets into two separate accounts – offering protection of $250,000 each – and then a joint account, which can offer protection for up to $500,000 in total.
And of course, that’s per FDIC-insured bank. So you can use the same strategy at each bank.
“Savings accounts are all pretty much the same, so long as your bank is FDIC insured and you stay within the FDIC limits, your money will be safe and sound, backed by the full faith and credit of the U.S. Government,” says Gary Zimmerman, CEO and founder, MaxMyInterest.com.
5 ways to safeguard your money and boost your returns
Most of us don’t have to worry about bumping up against FDIC limits, but that’s no reason to settle for low rates on your accounts, either, especially now.
“Online banks and challenger banks can pay top APYs,” says Wisniewski. “Right now, there’s a frenzy for your deposits – banks and credit unions need them. Expect to be wooed.”
Here are five top alternatives to your bank that offer safe, high yields and what to look for.
1. An online high-yield bank account (or two)
The first move is the simplest: If you’re stuck with a savings account that’s still yielding little or nothing, it’s time to find an online high-yield bank and take advantage of today’s higher rates. That could be with a high-yield savings account or a CD, and the ease of opening an account means that you can go with the best banks in each deposit category and put in little effort.
It has never been easier to move money around to access the country’s highest yields, while still getting the full protection of an FDIC-backed account.
2. A robo-advisor with higher account protection
It can be easy to overlook robo-advisors if you’re not investing your money with them, but the top robo-advisors have separate cash accounts that pay some of the best yields around. And yes, they’re FDIC-protected, because they work with FDIC partner banks. In minutes you can have a high-yield account at a top robo such as Wealthfront or Betterment, both of which typically pay some of the most competitive rates
Both offer cash accounts that can seem to do it all, with checking, early direct deposit, no fees and many more features. Wealthfront also offers up to $3 million in FDIC coverage on individual accounts through its partner banks, while Betterment increased its limit with partner banks to $2 million on individual accounts. Those amounts are doubled for joint accounts.
If you want to push to the limit of FDIC coverage, it’s worth noting whether you already have money with any of these partner banks, since you won’t get extra coverage. Also, FDIC coverage begins only when the money reaches the partner banks, so there could be some gap in coverage for a brief period while the money moves from the robo-advisor to the bank.
3. A bank that belongs to IntraFi
If you’re looking for greater FDIC protection, then you might be interested in working with a bank that partners with other banks to offer a higher total limit to depositors.
“If you have more than $250,000, consider looking for a bank that is a member of the IntraFi Network – it will spread your money across a range of banks to keep it safe if and when a bank fails,” says Wisniewski.
But you’ll work with just your own bank when it’s time to make deposits or otherwise transact. The total coverage amount can go as high as $150 million for one tax identity, according to one partner bank. You can participate with money market accounts and CDs, the latter through IntraFi’s Certificate of Deposit Account Registry Service, known more familiarly as CDARS.
4. Open a credit union account
While FDIC protection may get all the headlines, depositors can achieve the same levels of federal insurance coverage from the National Credit Union Administration (NCUA). Federally insured credit unions must display a NCUSIF sign in their locations to indicate as much.
You’ll not only raise your insured deposit limits, but may also enjoy the greater levels of service offered by the best credit unions as well as more favorable rates on deposits and mortgages.
5. A banking app that automatically finds the top yields
It can be easy enough to set up your own high-yield account and transfer money, but you can also set up an app such as MaxMyInterest.com to move your money around to access some of the better yields automatically. As rates shift, your money moves to better yields.
The app was created during the global financial crisis, says Zimmerman. “My solution was to spread cash across multiple bank accounts, titled in my own name, so that I could keep all of my cash below the FDIC limit at each bank with direct access to each account and no single point of failure.”
Through the app you can open accounts at various banks in your name. The app moves your money from one account to another and keeps your funds below the FDIC limit. The app charges $40 for every $100,000 in your savings accounts, with a $20 quarterly minimum.
While the financial system is undergoing some stress and potentially even more later on, use this moment to safeguard your own finances and even boost your yield with a few simple steps. You may discover that it’s easy to open a new account, and you may earn more money, too.