Worried about banks? Keeping your money safe

Q: Given all the recent bank failures, I'm nervous about leaving money I haven't invested parked at a brokerage. What other options do I have?

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A: Not eager to leave cash sitting around at your brokerage? There are many reasons why you're right to think that way.

Many investors have some extra cash held in their account. Most of the time, that cash gets next to no interest due to low rates paid on idle cash by most brokerages. If you only have $20 in cash at your brokerage account, it's not a big deal. But if you have hundreds or thousands of dollars sitting at your brokerage, you might be missing out.

Consider an investor who has $10,000 in cash at a brokerage while waiting to buy a stock. And imagine the brokerage is only paying 0.1% interest on that money. That investor will earn just $10 that year in interest. However, if the money was moved to an account paying 1%, the investor would earn $100, or $90 more.

Again, these are not huge numbers. But most investors wouldn't refuse $90. Given how easy it is to move money between accounts, there's just not much reason to leave money sitting in a brokerage account.

But your question goes beyond the economic aspects of where to stuff cash. You're concerned about safety. And when it comes to brokerage accounts, safety is again an issue. Most brokerages typically move uninvested cash into money-market accounts. Money market funds generally do not qualify for FDIC (Federal Deposit Insurance Corp.) insurance protection.

FDIC insurance is financial protection administrated by an agency of the U.S. government to protect savers from having cash stolen or lost in a qualifying account. For money you absolutely don't want to lose, it's best to keep it in a savings account with FDIC insurance. If safety is your worry, be sure to adhere to the terms and conditions of FDIC insurance to get this added layer of protection.

You can check on your bank and see if it is FDIC insured.



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