In the wake of Silicon Valley Bank’s failure, you may be concerned about the safety of your cash at a bank or brokerage firm. Here are some answers to questions you may have.
Is my cash safe?
The most common places to hold cash are bank savings accounts, certificates of deposit (CDs) issued by banks, and money market mutual funds managed by brokerage firms, including Fidelity. All of these products are designed to help protect the value of your cash while also paying you interest on your money.
Is my cash insured if the institution that holds it fails, like Silicon Valley Bank?
If your cash is in a CD or bank account, the federal government insures up to $250,000 of it, per bank, through the Federal Deposit Insurance Corporation (FDIC).
Can you get more than $250,000 in coverage?
The FDIC's $250,000 insurance limit is per account owner. That means you have up to $250,000 in insurance coverage available at each bank where you have a savings account, CD, or bank Money Market Deposit Account (MMDA). If you have more cash than that, you can deposit it at other FDIC-insured institutions to be fully insured.
How does FDIC insurance work at Fidelity?
Fidelity offers an FDIC-insured Deposit Sweep Program for certain account types: Cash Management1 health savings accounts (HSAs) and most IRAs. Cash balances in the Fidelity FDIC-insured Deposit Sweep Program are swept into an FDIC-insured interest-bearing account at one or more program banks. Deposits swept into the program bank(s) are eligible for FDIC insurance, subject to FDIC insurance coverage limits.
If you utilize the program, your uninvested cash balance is swept to a program bank where the deposit is eligible for FDIC insurance. The program maximizes your eligibility for FDIC insurance by systematically allocating this uninvested cash across multiple program banks. We currently have about 20 banks available for Fidelity Cash Management and IRA accounts (although new deposits at any point in time are subject to bank capacity limits). Assuming all the banks have available capacity, a customer could have up to $5 million of uninvested cash covered by FDIC insurance2.
You can find details on how your core position is allocated within the “Positions” tab on Fidelity.com. A Fidelity rep can also help you customize the program banks in your bank sweep account.
In the event that you have more uninvested cash in your account than we can obtain FDIC insurance coverage for, we sweep that additional cash into a money market mutual fund as part of our Money Market Overflow feature.
Fidelity also offers brokered CDs,3 which are issued by banks for customers of brokerage firms. Because the deposits are obligations of the issuing bank, and not the brokerage firm, FDIC insurance applies. This could allow you to obtain even more FDIC insurance coverage in your account since Fidelity offers a continuous selection of CDs from different banks at the same time. Brokered CDs are not limited to clients of brokerage firms; the term “brokered CDs” refers to the fact that a fee is paid for their distribution.
How safe are money market mutual funds?
Money market mutual funds are a type of fixed income mutual fund that invests in debt securities characterized by their short maturities and minimal credit risk. SEC regulations mandate their quality, liquidity, duration, diversification, and transparency in order to enhance stability and facilitate liquidity. Money market mutual funds are among the lowest-volatility types of investments. However, they do not carry FDIC insurance as do bank Money Market Deposit Accounts, CDs, and savings accounts at banks.
Government money funds such as Fidelity Government Money Market Mutual Fund (SPAXX)*, typically invest only in cash, the highest quality, lowest-risk securities issued by the US government, and repurchase agreements collateralized by cash or US government securities. Treasury and government money market funds are designed to maintain a stable net asset value (NAV) of $1.00.
Retail prime money market mutual funds such as Fidelity Money Market Fund (SPRXX)*,* invest in securities issued by the government as well as short-term securities, such as commercial paper. These funds also offer stable $1.00 NAVs. They differ, however, from government funds in that they can also invest in commercial paper, certificates of deposit, corporate notes, and other private instruments from domestic and foreign issuers, as well as repurchase and potentially reverse repurchase agreements.
Retail tax-exempt municipal money market funds such as Fidelity Municipal Money Market Fund (FTEXX)**, invest in municipal securities and also offer a stable $1.00 NAV.
Do Fidelity money market mutual funds carry FDIC insurance?
The US government does not offer insurance on any type of mutual fund. Money market mutual funds, like bond and stock mutual funds, are investments, and, as such, are not guaranteed. It is important that investors understand that. Cash held by investors in new Fidelity brokerage and individual retirement accounts is automatically placed in government money market mutual funds. Cash in existing accounts can also be invested in such money market mutual funds.
Do stocks have insurance from the federal government?
The FDIC's mission is to insure deposits at banks, not stocks, bonds, or mutual funds. It does not provide insurance against financial losses resulting from changes in the market value of stocks, bonds, and mutual funds.
What else should I know about keeping my cash safe?
We understand the concerns many may have, given the current and evolving environment, and are closely monitoring and assessing this situation to best support our customers. We would like to reassure you that we have a variety of measures and controls in place for supporting customers through all market events. This includes us not being dependent on any single entity to provide cash services to clients.
Is holding cash still a safe strategy for preserving wealth?
While maintaining a large allocation to cash is not a good long-term strategy for most investors, due to the potential impact of inflation, cash held in CDs and money market mutual funds has historically provided a cushion against market downturns. For investors who want to earn income while preserving capital, it may still be a good time to consider longer-term CDs, which can provide income through volatile markets.
To help manage the anxiety and fear that may arise from watching the market react to events such as the failure of Silicon Valley Bank, it's helpful to have a long-term asset allocation plan as part of a broader financial plan. An appropriate asset allocation includes a mix of stocks, bonds, and short-term securities or cash that aligns with your goals, time horizon, and your ability to manage risk. Your plan can help you avoid emotional overreactions to volatility so you can stay on track toward your long-term financial goals.