In a sign of the times, a few readers have contacted me over the past months asking what you’re supposed to do when your brokerage account balance exceeds $500,000 and the amount of your account is no longer covered by SIPC insurance.
As many of you know, the federal government is the first backstop against institutional failure. You got $75,000 in a bank account, and the bank goes under? No problem. You’re covered up to at least $250,000. Got $125,000 sitting in a credit union somewhere? No problem. NCUA insurance has you covered for at least $250,000. And because credit unions have no shareholders, the risk of institutional failure is minimal because the credit union is run to benefit the lives of depositors and other customers whereas banks have to charge higher fees to make a profit for shareholders. Plus, there is the prospect of demutualization. Every now and then, a credit union decides to convert into a publicly traded company, and when it happens, the depositors become the public shareholders.