23 Feb, 2024
1 min read

The Advantages Of Excess SIPC Insurance Brokerage Accounts

Robert Amoruso is the Founder and CEO of Gideon Strategic Partnersa boutique investment advisory firm based in Santa Monica.

Investing in excess of SIPC-insured brokerage accounts instead of FDIC-insured bank accounts may seem daunting. Still, for savvy investors, it could be the key to unlocking higher returns with greater security. Knowing how banks and investment custodians make money is essential to understand why. Banks primarily make money by lending out deposits at higher interest rates than they pay depositors. This is why FDIC-insured bank accounts are limited to $250,000 per depositor per account ownership category.

In contrast, investment custodians like Fidelity, Schwab and TD Ameritrade primarily make money by charging fees on assets under management. These custodians hold client assets in separate accounts legally segregated from their assets, so even if the custodian goes bankrupt, they are still protected.

This is where excess SIPC insurance comes in. The Securities Investor Protection Corporation (SIPC), a nonprofit dedicated to keeping your investments safe and secure, provides up to $500,000 in protection for securities held in brokerage accounts in the event that the brokerage firm goes bankrupt. Excess SIPC insurance offers additional protection beyond the $500,000 limit, typically up to $25 million per account. Investors holding securities in extra SIPC insurance brokerage accounts can have greater peace of mind knowing their assets are protected in a catastrophic event.

But what types of securities are appropriate for cash management? Short-duration, triple tax-free municipal bonds with low duration can be an excellent option for investors looking for a low-risk, tax-efficient investment. State and local governments issue municipal bonds to fund public works projects, and the interest income is typically exempt from federal, state and local taxes.

Short-duration bonds have maturities of one to three years, which means they have a lower interest

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