When Silicon Valley and Signature Banks failed recently, there was a lot in the media about the FDIC insurance limit of $250,000 per person per bank. Any funds in a bank beyond that are uninsured in the case of bank failure. We all saw this point made again and again in the news.
It turns out there is a solution for this, and it has been around for quite some time. A company called IntraFi, https://www.intrafi.com/, is a network of banks that have an arrangement to increase the amount of coverage.
Here’s how it works: When you set up your accounts with a bank that has IntraFi coverage, you tell the bank you want this. Using an assumed $250,000 coverage limit per person, let’s say you deposit $5 million with the bank. Thus, $4,750,000 would be uninsured by the FDIC.
The bank you deposited your money with distributes $4,750,000 to other banks in the network in $250,000 increments. Thus, you end up with $250,000 with each of twenty different banks. All of the money is covered by FDIC insurance.
There are two types of accounts you can chose:
- ICS = Insured Cash Sweep (savings and demand account)
- CDARS = Certificate of Deposit Account Registry Service
Both fall within the IntraFi network, but one is a liquid option and the other is a CD option.
When told about this product by Kit Gerwels at Washington Trust Bank, I was astonished that it existed, and that I had never heard of it. And clearly, most of the business media has never heard of it.
It turns out that of the roughly 5,000 banks in the U.S., 3,000 of them offer this product. The other amazing thing is, why don’t bankers publicize this offer to attract deposits to their banks? It would seem a very attractive thing to consumers and the costs are very modest.
There are a few small downsides. First, the interest rates on each of these $250,000 accounts aren’t as high as having $5,000,000 with one institution. Second, the IntraFi online banking doesn’t interface well with your bank’s online banking, so you’ll log in twice. And finally, while this will protect your cash, it will not protect a line of credit from suddenly disappearing should your bank fail.
Kit tells me that this program is little known and little used. But now that you know, and with all the talk of bank failures in the news, you might think about this. The downsides seem trivial compared to the guarantee of insurance of all of your cash deposits.
By the way, while I gave you the link to the IntraFi website above, the site is aimed at their customers, which are banks. I did not find it very helpful at all. Better to start with your bank and ask if they offer this service.
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