This is something that troubles me.
If I have or had $700k at Vanguard or Fidelity or perhaps Schwab…wherever major…in a short term treasury fund, if the institution, Vanguard, Fidelity or Schwab totally failed…would the treasury holdings insure all $700k? Would the $700k be whole after the brokerage was gone?
There may be some loopholes I’m unaware of, but I believe FDIC still only insures up to $250K per account. You can have multiple accounts, though, at one institution such as a Fidelity bank account, a Fidelity stock account, a Fidelity Roth, etc. that would all have the $250K insurance (a total of $750K in this example).
Others please pipe in and confirm and elaborate.
Pete
I can’t speak to the others but Schwab has SIPC insurance on each separate account up to $500,000, but only $250,000 per account of uninvested cash balances. They also have a “bank” side paying the usual pathetic interest rates, those have $250,000 FDIC per account unless that’s changed.
https://www.schwab.com/legal/sipc-account-protection
You can have separate accounts of course: traditional, IRA, Roth, spouse, joint, etc.
The problem is a family member has been told by one of these brokerages that the fund is in treasuries as if that is secure.
That has nothing to do with the major institution going under because of say exposure to the swaps market.
If you hold a treasury fund with well over $500k will those treasuries or that fund convert to you should the brokerage be wiped out?
There may be some loopholes I’m unaware of, but I believe FDIC still only insures up to $250K per account.
iirc, FDIC only insures bank accounts. SIPC insures cash and securities held at a brokerage, but only against loss due to the actions of the broker. SIPC does not insure against loss of value of the investment.
When the Reserve Primary Fund, a money market fund, broke the buck in 2008, when the sketchy paper it held started to collapse, and people lost money.
Reserve Primary money market fund breaks a buck
The $64.8 billion fund held $785 million in short-term IOUs, called commercial paper, issued by Lehman Bros., which filed for bankruptcy protection Monday.
https://abcnews.go.com/Business/story?id=5819604&page=1
The information I gleaned from this board, prevented me having a bad day that day. I had moved my sweep account at the brokerage from that fund to a bank CD fund a year earlier.
Steve
The problem in my question is the US treasuries are a very good or excellent asset class.
The problem in my question is the US treasuries are a very good or excellent asset class.
This might help:
https://www.investopedia.com/articles/investing/050515/what-….
I’m not sure the quality of the asset class is all that relevant to your question. If the institution has ‘totally failed,’ they may have liquidated some or all of their client’s holdings to pay the expenses of the firm itself (they’re, of course, not supposed to, but you know). You would (presumably) be eligible for SIPC protection up to the insured limit, but the quality of the asset isn’t really going to matter much - they’re just going to try to replace the asset for you, whether it’s treasuries or 100 shares of JunkCo OTC.
Albaby
I can’t speak to the others but Schwab has SIPC insurance on each separate account up to $500,000, but only $250,000 per account of uninvested cash balances.
Those are the SIPC limits. Some brokerages buy additional insurance.
Example from Ameriprise:
Excess SIPC
Our brokerage accounts are also covered by supplemental “excess SIPC” insurance, which provides further protection to our clients (including up to $1.9 million for customer cash balances in a brokerage account), subject to an aggregate policy limit of $1 billion for all client claims. Review your Client Agreement to learn more about the SIPC insurance coverage specific to your Ameriprise® accounts. You can learn more about the SIPC by visiting its website at sipc.org
https://www.ameriprise.com/financial-goals-priorities/invest…
Steve
The basic problem is that in most cases your assets are held by the broker in street name. The broker can fail most likely in a market crash when margin calls don’t cover losses. So firms assets are depleted below minimums to continue in business.
Then bankruptcy court probably determines what share of surviving assets go to you. And insurance may make up the difference up to specified limits.
Its not that treasury bonds fail. Its that the surviving assets are in a pool shared by others.
Leap 1 writes,
This is something that troubles me.
If I have or had $700k at Vanguard or Fidelity or perhaps Schwab…wherever major…in a short term treasury fund, if the institution, Vanguard, Fidelity or Schwab totally failed…would the treasury holdings insure all $700k? Would the $700k be whole after the brokerage was gone?
Good question.
Years ago Vanguard had excess SIPC insurance protection up to account sizes of $10 million or $50 million (but still maintained a low limit on cash (i.e., $250,000).
Does anyone know if that’s still true? I can’t find anything about it on their website.
It may be time to start splitting up the money up between Fidelity and Schwab.
intercst
Yes called Vanguard they do offer the added SIPC insurance above $500k.
The problem is the swaps market like in 2008.
The next few months might be more telling.
China will probably drive the global financials cra cra.
The information I gleaned from this board, prevented me having a bad day that day. I had moved my sweep account at the brokerage from that fund to a bank CD fund a year earlier.
The reason I eliminated the sweep was the untold number of additional accounting entries that totally wasted by time and nearly melted down my brain. I suppose it works for accounts with lots of cash and lots of MBAs to keep track of the accounting noise generated by the sweeps. I would have kept the sweeps had they replaced the bothersome reporting with just a month end entry.
The Captain
would the treasury holdings insure all $700k?
No. The Treasury is only responsible for paying its bonds and notes. It is not responsible for the actions of those holding those bonds and notes. In your scenario, a mutual fund is holding the securities for its shareholders’ benefit. And going a step further, a broker (Vanguard, Fidelity, Schwab in you example) is holding the shares of the mutual fund for your benefit.
Would the $700k be whole after the brokerage was gone?
Perhaps. While the Treasury isn’t going to make you whole if your broker fails, most (all?) (but certainly the ones you listed) brokers carry insurance with SPIC to protect the broker’s customers in case the broker fails. There are limits to that insurance, so you’d have to investigate the specifics for your broker to know exactly what limits they purchased.
—Peter
I use Vanguard exclusively for one-stop shopping for these two reasons:
If you’re still that concerned, you can split your investments among all the major brokerage firms. That way, if one of them goes under, only a portion of your portfolio is affected.