Quora Answer: Since Banks Only Insure Accounts up to $250,000, How Do Millionaires & Above Protect Their Money?

The following is my answer to a Quora question: “Since banks only insure accounts up to $250,000, how do millionaires and beyond protect their money?”

The FDIC insures $250,000 per depositor, per insured bank, for each category of account ownership.  There will be separate coverage for deposits held in different account ownership categories.  This means that it is possible for a person to have more $250,000 insured, if he spreads ownership across account categories, and holding entities.  High net worth people do not, generally, keep their assets under their name, but hold them through various entities such as companies and trusts.  This is also a tax mitigation exercise, to lower their tax liability, and expense out claims.

Secondly, they do not keep the bulk of their assets in cash, to minimise currency, and political exposure.  For liquidity, they have assets in the money market, in stocks and shares, and through various funds, spread across asset categories from debt to equity instruments.  This includes ETFs, CDs, and other types of certificates.

Finally, for exceptionally large amounts of funds, starting from around US$100 million and above, they engage in fund placement exercises, where they put that sort of money with a suitable bank, and draw down from it through various bank instruments.

The problem with exceptionally large amounts of cash is that keeping them has a cost, for security and storage.  You cannot put such amounts in your personal savings account, or even your company checking account.  Instead of paying you interest, the bank charges you interest for keeping the funds for you.  You cannot simply withdraw them from the bank, and close your account because they will be encumbered, and simply removing them from the bank would severely impact the bank’s liquidity, and central banks will not allow those shenanigans.

You cannot simply move such sums across borders since their very presence would affect interest rates, inflation, and foreign exchange rates.  Governments will not allow you to wreck their economy.  If possible, these ultra-high net worth would have these funds dispersed through various entities, in various stages of fund placement, or conversion to other assets.  You will not have cash lying around.