Sat. Feb 24th, 2024


As customers raced to pull billions out of Silicon Valley Bank and Signature Bank in March, the usually boring world of FDIC insurance suddenly became a hot topic.

The bank failures were a stark reminder that big deposits can be vulnerable if they exceed the $250,000 Federal Deposit Insurance Corp. limit, and sparked a scramble among high-net-worth savers and businesses to make sure all their money was protected.

It’s been a boon for a growing number of robo-advisers, wealth managers and banks offering services that help clients spread their money around to ensure that more of it — up to $150 million in some cases — is protected.

“The recent banking crisis has definitely made our clients take a closer look at FDIC insurance and their current banking relationships — particularly those who have large amounts of short-term cash on hand from the sale of a business or home, an inheritance, or large future purchases,” said Andy Leung, a wealth adviser with Procyon Partners.

Services from IntraFi Network, StoneCastle Cash Management, R&T Deposit Solutions and others operate behind the scenes in the banking world. They take cash above the FDIC limit in an account at one bank and electronically parcel it out in roughly $250,000 chunks to a network of FDIC-insured institutions, primarily regional and community banks.

That way, all the cash is protected without a customer having to open and track accounts at multiple banks. The client’s point of contact remains their original adviser or financial institution, which provides statements showing where the money is and often acts as custodian of the deposits.

Extra Insurance

Demand for deposit-spreading services has been booming since the collapse of Silicon Valley Bank last month, even though regulators said all depositors would be made whole. StoneCastle’s volume of new accounts opened though registered investment advisers has roughly doubled, said Frank Bonanno, the company’s head of marketing.

“The ripple effects of SVB has them clamoring to stay above the fear-inducing trending term of ‘uninsured deposits,’” he said.

IntraFi, which is the largest player in the space, added 25%, or approximately a year’s worth of growth, to deposits in its network since mid-March, according to the company. IntraFi’s chief executive officer Mark Jacobsen is a former chief of staff for both the FDIC and the Office of the Comptroller of the Currency.

Big  Networks

How much “extra” coverage is available varies by adviser and the service they use. Some services work with a network of a dozen institutions, while StoneCastle has access to more than 900 banks. IntraFi has a network of more than 3,000 banks and financial institutions, more than 150 of which have joined the network since mid-March. 

While the additional FDIC insurance is the primary draw of these services, interest rates on many of the accounts can exceed 4%, offering an additional enticement. Wealth managers using third-party vendors can choose to offer a variety of insured accounts, including cash sweep accounts, demand deposit accounts, money market deposit accounts and certificates of deposit. Fees differ by adviser and service. 

Niche Players 

While business at the big players swelled, a lot of smaller players also launched new or expanded services to offer increased FDIC coverage. Among them were: 

  • Betterment: The robo-adviser doubled coverage through its high-yield Cash Reserve account to $2 million, or $4 million for joint accounts. The product currently offers a variable rate around 4.2%.
  • Wealthfront: Wealthfront upped the amount covered through its cash sweep program to $3 million, or $6 million for joint accounts, from $2 million ($4 million for joint accounts). The account has a 4.3% rate. 
  • Brex: The neobank hiked the amount it would parcel out to get FDIC coverage for business cash-management accounts to $6 million from $2.25 million. 
  • Mercury: The banking platform catering to startups rolled out a product to offer customers FDIC coverage up to $5 million.
  • MaxMyInterest: The fintech gives users up to $2 million in coverage per person, or $8 million per couple. It focuses on maximizing the interest rate paid on high-yield savings accounts by monitoring for rate changes and proposing new accounts; depositors can currently earn up to 5.1%. Cash on its platform grew by more than 30% in the first quarter, said CEO Gary Zimmerman. 

By comparison, StoneCastle can offer as much as $100 million in FDIC coverage per tax ID. Some banks in IntraFi’s network advertise that they can provide access to coverage of up to $150 million for cash sweep accounts. In practice, deposits rarely get that high — IntraFi’s average deposit is $3.1 million, according to the company.

For many people, of course, diversifying across banks isn’t a necessity. After all, a married couple can get $1 million in FDIC coverage at one bank — two separate accounts covered at $250,000 and a joint account covered at $500,000.

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