When it comes to keeping safe and insured your money either from banks, the first thing that comes to mind is putting it in a bank. After all, banks are considered the most secure and regulated institutions to hold your money. However, there are other ways to protect your money outside of banks.
The Federal Deposit Insurance Corporation (FDIC) is an independent US government agency that provides deposit insurance to protect bank customers in the event of a bank failure. FDIC insurance covers deposits up to $250,000 per depositor per account type at FDIC-insured banks. This means that if the bank fails, the FDIC will reimburse you up to $250,000 of your deposit.
But what if you have more than $250,000 in savings? You can still protect your money by spreading it across different banks. For example, if you have $500,000 in savings, you can open two different bank accounts, each with $250,000, at two different banks.
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Credit unions are financial cooperatives owned and controll by their members. They offer similar services to banks, such as checking and savings accounts, loans, and credit cards. However, credit unions are not-for-profit institutions, which means they may offer better rates and lower fees than banks.
Credit unions are also insured by the National Credit Union Administration (NCUA), which provides deposit insurance for up to $250,000 per depositor per account type, just like the FDIC. The NCUA also regulates credit unions to ensure they are operating safely and soundly.
Brokerage accounts are accounts you open with a brokerage firm to buy and sell securities, such as stocks, bonds, and mutual funds. While brokerage accounts are not insured by the FDIC or the NCUA, they are protect by the Securities Investor Protection Corporation (SIPC).
The SIPC provides up to $500,000 of protection for securities and cash held in a brokerage account in the event the brokerage firm fails. This protection covers up to $250,000 in cash, which is separate from the $250,000 in FDIC insurance coverage you may have at a bank.
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Money Market Funds:
A Money market funds are investment funds that invest in short-term, low-risk securities, such as Treasury bills and commercial paper. Money market funds are not insured money by the FDIC, the NCUA, or the SIPC banks, but they are regulat by the Securities and Exchange Commission (SEC).
Also Money market funds aim to maintain a stable net asset value (NAV) of $1 per share. However, if the value of the underlying securities in the fund decreases, the NAV may fall below $1 per share. In this case, you could lose money.
To reduce this risk, you can choose money market funds that invest in government securities or those that are label as “institutional” or “prime” funds, which have stricter investment guidelines.
While banks are generally consider the safest place to keep your money, there are other options available that can provide additional protection. Credit unions offer similar services to banks and are insured by the NCUA. Brokerage accounts offer SIPC protection for up to $500,000, and money market funds are regulated by the SEC. By spreading your money across different types of accounts and institutions, you can diversify your risk and protect your money.