What is FDIC and SIPC? How much money is safe to keep per account?

Every proper bank has a disclosure on their web site: FDIC insured up to $250,000. But what does it mean exactly?

What happens if you have more money than $250,000? Is your money at risk?

Probably only people who approach $250,000 in an account will ask those questions.

There are 2 types of insurance for different types of accounts.

The FDIC insurance is for deposit accounts: checking, savings, money market accounts, sweep accounts and certificate of deposit (CDs).

Surprisingly the retirement accounts such as IRA and 401k are included. The $250,000 insurance is per depositor per account category.


The SIPC insurance is for securities held in a brokerage account. The brokerage accounts are protected for up to $500,000 for securities and $250,000 limit for cash.

Why is there limit of only $250,000 for cash? Brokerage firms use sweep accounts for cash and cash is swept into deposit accounts through bank sweep programs. These sweep accounts are covered by FDIC insurance, which goes only up to $250,000 limit per person per each account type. 

All deposit accounts are FDIC insured per depositor, per each account category. 

That means that if you have one joined checking account with two co-owners, the entire account is insured for $500,000 ($250,000 per co-owner). If you have more accounts of the same type with the same bank, the limit will be shared among all accounts of the same type.

If you have a checking and a savings accounts with the same bank, the amounts will not be shared because those are different type accounts.

If you have two checking accounts and one savings account and all of them are joined, the insured amount will be $500,000 for both checking accounts and another $500,000 for the savings account. 

If you have an additional singe non-joined savings account with the same bank, this single account will share the limit with your portion of the insured amount in the joined savings account.  

If in addition you have more than one CDs, they all are counted as one account type.

The interesting thing is that IRA and 401k are insured by FDIC, only up to $250,000. Both IRAs and 401k accounts are considered to the same type of account. Health savings account is also in the same category. That means that the FDIC insurance limits will be shared among all three accounts if you have them at the same institution and entire sum of retirement money in IRA, HSA and 401k will be insured only up to $250,000. It might be the best to hold IRA, HSA and 401k with different institutions unless you are sure you will never reach the limits.

You can use the Electronic Deposit Insurance Estimator (EDIE) to play with the numbers and see what is insured and how. It works OK to get the feeling.

But who keeps so much money in a checking or savings account? You want your money to work and produce returns.

A more interesting question is how brokerage accounts are insured.

As I was approaching the $250,000 in my brokerage account I wanted to know if I should start opening  more brokerage accounts with other banks to have all money covered.

The securities in a brokerage account are insured by SIPC for up to $500,000. If there is cash in the account, the cash goes into the sweep account and which will be insured by FIDC for the time being.

I usually don't hold more tan $250,000 of cash in that account (yet). It is a joined account, So the sweeped cash is insured up to $500,000 because of 2 depositors and the securities are insured up to $1,000,000.

With all that information it looks like in my joined brokerage account I can hold up to $1,000,000 in securities including up to $500,000 in cash. This amount in cash is not in addition to securities but as parking cash position when some securities are sold and before the new once are bought. So total will still be $1,000,000.

Obviously there is still time left before I will get over those limits and will have to open another brokerage account.

And I probably worry too much. My research on the web showed that the SIPC insurance had to be used are exceedingly rare and that FDIC was used more frequently than SIPC.  

What happens when a FDIC insured bank fails?

The FDIC replaces cash up to insurance limits. It happens within few days of bank closing and it provides the insured with a new account at another bank and the insured will receive a check with the amount. If the money exceeds the limits, the bank assets will be first liquidated and the proceeds will be divided between debtors pro-rata.

How to manage lifestyle inflation?

Lifestyle inflation - is it a problem of control?


Since I started working as an attending my expenses increased compared to the expenses during my residency.


Things that have changed since the new job:


1. I drive a more expensive car. The reason to buy a more expensive one was: I need a reliable car because I am expected to be at work as scheduled. Calling in because of a broken unreliable car is not professional. This expense makes sense and is justified. My old car was not reliable at all and when I traded it in for the new one a light smoke was coming out from under the hood. They still took it.


2. I buy more business/official looking cloths and shoes. This is also justified. I don't wear scrubs or a white coat and as a laboratory director I have to look accordingly to project competency and authority to both sides, personnel and administration. Old or non-professional looking cloths won't cut it.


3. I go on more expensive vacations. That is just for fun and I know that I am not overspending. I decided that spending $10,000 per year on vacation is fine.


Things that didn't change:


1. We still live in the same house we bought during residency. At the time of the house buying I read that most people buy a smaller "starter" house first and later move to a larger one. We decided not to do that and bought a right sized house from the start. 


2. We go out to eat about as frequent as during residency. The expenses didn't change much but the feeling has changed. Now I don't look at the prizes when I order. So the costs may have gone up a bit, but not significantly.


3. Nothing else changed really. Mostly we spend money on the same things as before, just the feeling is different, it just goes with ease and without any guilt feelings.


Some would say that I have a good self-control or will power. I would disagree. My will power is weak. But I have a trick.

I have worked out a decision process to use when spending money on something and that process became a habit.

Once you make a habit out of something, the will power is not necessary anymore.


How does this process work?


1. I have my major savings goal in mind and I update the status on how close I am to my goal once a month.

My major goal is to reach my savings magic number.  I update the balance monthly and I know where I stand. I know how fast or slow my progress is. I also know approximately how long I still need until I reach my goal. That gives me an idea on how strict I have to be with spending money.

2. I ask myself only one question before spending money on something.


Questions NOT to ask:

Do I need it? - is a wrong question. Your brain will always fool you into the need. The function of your brain is to keep you safe and to prepare you for any possible adverse situation.

Do I like it? - is also a wrong question to ask. I noticed that I like a lot of things.

Do I want to have it? - the same, most of the times you would want to have it.

The question to ask is this: 
How sad will it make me if I will die before doing that?


Here how the connection between savings goal and this one question plays its role: 
I know that I am not there yet and I still need a few years to complete the savings goal. I know that the job safety is not guaranteed and the way to the goal might get longer. But I also know that I will not live forever, that at some point I will die. That might happen before I reach my savings goal. 
All this information is balanced in the background. It is processed partially subconsciously and at the end I have my simple answer.  

The degree of sadness will tell you everything: if you should do it immediately or if you should wait and if wait then for how long.


I always dreamed about a romantic morning at the Ritz hotel somewhere in Europe with strawberries and Champagne for breakfast. 
After asking myself, how sad will it make me to know that I will die before I will get a chance to have my Champagne with strawberries for breakfast at a fancy hotel, the answer came immediately.
It would make me very sad. I didn't even want to wait for the hotel. Next day I went and bought fresh strawberries and Moscato vine (which I like more than Champagne).  I had my special breakfast every Saturday and Sunday for 2 months in a row.

Sometimes I think of going on vacation to Ireland. I spent 6 moth in Ireland and I like this country very much. When I ask myself how sad it would make me if I die before I go to Ireland, it makes me just a little bit sad, like 10 out of 100. So it is not an urgent item and I don't spend much time thinking about it at this time.

Another example:
My friend went to China. When I ask myself how sad will it  make me if I don't get to go to China before I die, the answer is surpizing: it will make me said if I do go there before I die. I don't know why. With a feeling like that I don't plan to go there.


Using this method makes the question about the lifestyle inflation mute and replaces it with a true personal value of things tailored exclusively for you.
But you have to be honest and only listen to you own feelings. It might not work for those who try to keep up with the Joneses. They have to work on their self worth and psychological self-sufficiency first.