"How do I know my brokerage account is safe?"

That's something I've been hearing a lot from friends, family, and many of our Rich Retirement Letter readers as the banking crisis unfolds.

With the collapse of Silicon Valley Bank and uncertainty for many other regional banks around the world, it's certainly an important question.

After all, many retirees keep large amounts of cash in their investment accounts. So the failure of a brokerage company could have a huge impact on your retirement.

That's why I wanted to take some time today to make sure you understand exactly how your investment assets are protected.

The Value of Segregated Accounts

Brokerage accounts give you a huge advantage when it comes to protecting your money. That’s because, unlike banks, brokerage accounts have to segregate customer funds. 

They’re also required to file a monthly report with regulators showing the details of how their accounts are segregated.

And brokerages don’t take your cash and lend it out to other borrowers like traditional banks do. 

Instead, they have to hold your cash separately and make sure it’s available for you to invest or withdraw whenever you want.

While this typically means you receive less interest from a cash balance in a brokerage account, it also means your cash balance is safer than it is in a bank account.

Cash Balances Are Still Insured

The Securities Investor Protection Corporation (SIPC) gives you an additional level of protection.

Similar to how the FDIC insures up to $250,000 in cash deposits at a bank, the SIPC insures up to $250,000 of cash in a brokerage account. The SIPC also insures up to $250,000 in securities.

So even though your cash is more secure in a brokerage account than in a bank, there's still a government-sponsored insurance policy backing up your cash balances.

Other Cash-Like Options to Keep Your Wealth Safe

Cash balances (up to $250,000) in your brokerage accounts are very safe. But there are some more attractive options, even if you're holding cash outside of traditional stock investments.

I recommend you consider Treasury bonds or Treasury bond funds for a portion of your cash position.

When you buy a Treasury bond, you're essentially lending money to the U.S. government. That loan is backed up by the full faith and credit of the United States.

You can buy Treasury bonds that mature in a month, six months, a year, or one of several other maturity periods. And now that interest rates have moved higher, these bonds give you a much more attractive yield.

In addition to buying Treasury bonds, you can also invest your brokerage cash in a money market fund. Many brokerages allow you to auto-sweep your cash balances into these funds, which now also pay attractive yields.

Money market funds invest in different bonds (like Treasury bonds) and pay you the interest received on these investments.

In today's challenging environment, I'd suggest investing in money market funds that only buy government bonds. That way your investments are still backed by the full faith and credit of the United States.

Please keep in mind that money market funds are not insured by a government entity. So you don't have the same FDIC or SIPC backstop that you get with for bank deposits or brokerage cash.

Bottom line: Your investment account is one of the safest places to invest your cash. 

But it's still important to think carefully about how that cash is placed, both from of safety perspective and making sure you're getting an attractive yield on your hard-earned cash.

I'll be back to you soon with more ideas for growing and protecting your wealth.