Where Do Millionaires Keep Their Money if Banks Only Insure $250k?

The Federal Deposit Insurance Corporation (FDIC) provides insurance for deposits in banks, covering up to $250,000 per depositor, per insured bank, for each account ownership category. This protection safeguards funds in checking accounts, savings accounts, money market deposit accounts, and certificates of deposit. Given this limit, individuals with substantial assets often employ various strategies to manage and protect their wealth beyond basic insured bank accounts. These approaches involve a combination of liquidity management, diversified investments, and sophisticated financial planning to ensure both security and growth.

Managing Liquid Assets Beyond FDIC Limits

Millionaires often employ specific strategies to manage cash and highly liquid assets that exceed the standard FDIC insurance threshold. One common method involves spreading deposits across multiple banks. An individual can secure full coverage for significant sums by distributing their money among several distinct banking institutions. For example, a person could have $250,000 insured at Bank A, another $250,000 at Bank B, and so on, effectively multiplying their insured cash holdings.

Another strategy involves utilizing programs such as the Certificate of Deposit Account Registry Service (CDARS). This service allows large deposits to be broken into smaller amounts and placed with various banks within a network, ensuring each portion remains below the $250,000 FDIC limit. The entire large deposit is managed through a single bank, simplifying the process while still benefiting from widespread FDIC coverage. Investors receive a single statement detailing all their CDs, regardless of the issuing bank, which streamlines record-keeping.

Beyond traditional bank deposits, wealthy individuals also use short-term U.S. Treasury bills or government money market funds for highly liquid holdings. These instruments are considered low-risk alternatives because they are backed by the full faith and credit of the U.S. government, offering security distinct from FDIC insurance. Money market accounts offered by brokerage firms also serve as a liquid option, distinct from bank money market deposit accounts, as they hold uninvested cash for securities transactions.

Diversifying Through Investment Portfolios

A substantial portion of a millionaire’s wealth is typically held in a diverse range of investment assets. These investments are not covered by FDIC insurance but offer potential for growth and are protected by other mechanisms. The primary goal is to spread risk across various asset classes, industries, and geographical regions.

Publicly traded securities form a significant component of these portfolios. This category includes individual stocks, representing company ownership, and bonds, which are debt instruments issued by corporations or governments. Investors also utilize mutual funds and Exchange-Traded Funds (ETFs), which are pooled investment vehicles that hold diversified portfolios of stocks, bonds, or other assets, providing immediate diversification. These securities are held by brokerage firms and, while not FDIC-insured, are typically protected by the Securities Investor Protection Corporation (SIPC), which covers up to $500,000 per customer (including a $250,000 cash limit) against brokerage firm failure. SIPC protection does not safeguard against market losses or declines in the value of securities.

Real estate also serves as a significant asset class for wealth preservation and growth. Direct ownership of residential or commercial properties offers tangible assets, potential for appreciation, rental income, control over the asset, and potential tax benefits like deductions for mortgage interest and depreciation. Indirect investment in real estate is common through Real Estate Investment Trusts (REITs). REITs are companies that own, operate, or finance income-producing real estate, allowing investors to gain exposure without direct property management. Traded on stock exchanges, REITs offer liquidity often not found in direct property investments and must distribute at least 90% of their taxable income to shareholders annually as dividends.

Advanced Wealth Management Strategies

Sophisticated wealth management often incorporates less liquid and more structured methods for asset protection, wealth preservation, and estate planning. These strategies serve as vehicles for holding and transferring significant assets.

Trusts are a foundational component of advanced wealth management. These legal arrangements allow assets—including cash, investments, and real estate—to be held and managed by a trustee for the benefit of designated beneficiaries. Trusts offer benefits such as asset protection from creditors, enhanced privacy, and the ability to facilitate wealth transfer outside of the probate process. Revocable trusts provide flexibility, allowing the grantor to modify terms or beneficiaries during their lifetime, while irrevocable trusts, once established, cannot be changed but offer stronger asset protection and potential estate tax benefits.

Private equity and venture capital represent direct investments in private companies or funds that invest in such companies. These investments are accessible only to accredited investors due to their higher risk and illiquidity, but they offer the potential for substantial returns. These opportunities allow wealthy individuals to participate in the growth of private enterprises, often over a long investment horizon.

Cash value life insurance and annuities also serve as wealth accumulation vehicles. Certain permanent life insurance policies, such as whole life or universal life, build a cash value component over time that grows tax-deferred. Policyholders can access this cash value through withdrawals or loans, which can be tax-free. Annuities are contracts with an insurance company that provide a stream of income and can also offer tax-deferred growth on the invested capital. These products combine insurance aspects with a savings or investment component, contributing to a diversified approach to wealth management.