FICA Protection for Excess Cash

Does your savings account exceed FDIC insurance limits? Some are turning to the banking benefits of FICA protection. 

I'll explain by breaking down the difference between FDIC and FICA.

FDIC Insured

In participating banks, depositors are entitled to FDIC (Federal Deposit Insurance Corporation) insurance coverage up to $250,000 per ownership category. FDIC insurance protects against the failure of an FDIC-insured bank.

Ownership Category

The FDIC.gov website indicates, "Deposits held in different ownership categories are separately insured, up to at least $250,000, even if held at the same bank"(Deposit Insurance Faqs). 

Ownership falls under various categories:

1. Individual or Single accounts that include checking, savings, and money market accounts.

2. Joint accounts with two or more people who hold equal rights to withdrawals.

3. Retirement accounts like an IRA (Individual Retirement Account).

4. Trust accounts are either revocable or irrevocable.

5. Business accounts for corporations, partnerships, and non-profits. 

Betty - A hypothetical example: 

At ABC Bank, Betty has $25,000 in checking and $125,000 in savings for a total of $150,000. Checking and savings represent an ownership category of an Individual title account.  

Betty also has a joint account with her sister Jane. The account balance in their joint account is $400,000. As a joint account holder, Betty's ownership is 50% or $200,000.  

Betty has been diligently saving for years and has an IRA worth $290,000.

Betty is a businesswoman and a real go-getter. She owns an online business called Betty's Best offering high-end fashion accessories. For the last few years, her sales have skyrocketed and she now has $550,000 in a business savings account.

Does Betty have full FDIC insurance on her deposits?  

No, and this is why:

SINGLE ACCOUNT $150,000

JOINT ACCOUNT $200,000 (Betty's 50% ownership)

RETIREMENT ACCOUNT $290,000

BUSINESS ACCOUNT $550,000

Her Single and Joint accounts both fall under the $250,000 max, but her Retirement and Business accounts exceed limits! What if her bank fails? Betty's hard-earned dollars are exposed. She could lose up to $340,000 (Betty's Retirement account exceeds FDIC by $40,000 and her Business account holds an excess of $300,000).

What can she do to protect her money? She can not simply move them to another ABC bank across town. However, she could move the excess funds from ABC Bank and deposit them at another FDIC-insured bank like XYZ.  

Unfortunately, with $300,000 excess in her Business account, she would still be exposed to loss. This may lead her to open a Business account at Third Bank. Now she can hold $250,000 at XYZ and another $50,000 at Third Bank. This sounds complicated, right?  

Don't worry, there may be an easier solution for Betty. She may want to consider a FICA account.  

FICA account

A relatively new banking protection is available to those seeking higher deposit protection. It's called FICA (Federally Insured Cash Account). 

With the help of a participating financial advisor, depositors can access multiple FDIC accounts at various banks through one central portal.

Online platforms like StoneCastle and Flourish provided high-yield cash management FICA protection. FICA protection is, "a series of digitally linked federally insured deposit accounts."  

When deposits are made at a FICA institution, they are aggregated over multiple participating banks to stay under the $250,000 maximum allowed. In other words, an institution participating in FICA protection will do all the work for the depositor to keep account values within FDIC-insured limits.  

Also, FICA accounts tend to offer higher-yield solutions than traditional brick-and-mortar community banks.  

Betty - Let's return to hypothetical Betty's situation 

Instead of Betty having to open accounts at three different banks to achieve FDIC insurance, with her advisor's assistance, she can conveniently access FICA protection to keep her money safe.  

This online solution makes FDIC protection a snap while allowing Betty to earn a good rate on her cash deposits.  

Conclusion

With the rise of bank shutdowns, FDIC insurance limits have become a concern for many. Many financial advisors can now offer their clients FICA solutions to keep cash safe with FICA protection.  

To learn more about cash management programs, contact me, Marianne Nolte, CFP®, Imagine Financial Services.

About the Author

Marianne Martini Nolte, CFP®  provides tax-savvy wealth management for women.

Contact Imagine Financial Services to learn about the services provided and associated costs. 

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References

FDIC.gov. (n.d.). Deposit Insurance Faqs. FDIC. https://www.fdic.gov/resources/deposit-insurance/faq/#:~:text=A%3A%20Deposit%20products%20include%20checking,which%20you%20hold%20your%20funds.