Cash management for individuals to minimize risks
In light of the recent Silicon Valley Bank failure, it is again important to have a good cash management solution for all individuals. I did some quick research, and asked a few industry experts, and here is what I have found so far. It is definitely not financial advice, just some personal notes that you might find useful as well. Please do your own research, verify, and leave your comments if I have missed anything.
Spread your cash across multiple banks
Official FDIC rules say it will insure $250,000 per account per participating bank. You can certainly open several different types of accounts for your family to maximize your coverage up to $3.5M as shown in example 7. You can also open accounts in different banks as well.
https://www.fdic.gov/resources/deposit-insurance/brochures/insured-deposits/
One important thing: always open a new bank account well in advance of a wire event. In the recent SVB bank run, some founders have trouble opening a new bank account in order to wire their balance in SVB to. During a bank run, hours or days means if your funds will be stuck or not.
Open a Cash Management Account
If you don’t want all the manual hassle of opening and maintaining several accounts in different banks, there are Cash Management Accounts that will automatically distribute your cash to different accounts in different banks. This means they can utilize the FDIC sweep Program to maximize your protection, in addition to earning more interest for you. For example Wealthfront and Fidelity offer such accounts.
https://www.bankrate.com/banking/what-is-a-cash-management-account/
Ask your banker
You can always ask your banking representative if they have Individual Cash Sweep Accounts which have similar functionality as Cash Management Accounts. Or if their bank offers additional insurance for cash amounts beyond FDIC’s $250,000 limit. You might be surprised to find that your bank already has those options to protect your cash.
What about the Money Market?
Money Market accounts are insured but money market mutual funds are not. But if the money market fund is mostly in short term treasuring bills (e.g. 4 or 8 weeks), they are considered safe since Uncle Sam will most likely not default.
https://www.forbes.com/advisor/banking/money-market-account-vs-money-market-fund/
You can even purchase short-term treasury bills yourself, either through TreasuryDirect, through banks and brokerage, or via an ETF.
Summary
Prepare well, explore your options, and keep safe!
