Is my money safe? Here are the ins and outs of FDIC insurance

  • The federal government helped Silicon Valley Bank and Signature Bank customers get their money back this week, even though their deposits were uninsured.
  • If other institutions fail in the future, customers may have to rely on FDIC insurance, Treasury Secretary Janet Yellen said this week.
  • Importantly, FDIC insurance has limits. This is how you make sure that your money is fully covered.

People wait for service outside Silicon Valley Bank in Menlo Park, California.

John Brecher | The Washington Post | Getty Images

Account holders at failed Silicon Valley Bank and Signature Bank got a lucky break in recent days as federal bailouts ensured billions in uninsured deposits were protected.

But the same may not be true the next time another bank fails, Treasury Secretary Janet Yellen said this week.

Depositors typically have coverage of up to $250,000 per bank, per account ownership category through the Federal Deposit Insurance Corporation, or FDIC.

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However, many of Silicon Valley Bank’s clients, which largely included venture capital firms, small technology companies and entrepreneurs, had uninsured deposits at the time of its failure. Data from S&P Global Market Intelligence from 2022 showed that 94% of SVB’s depositors were above the FDIC limit of $250,000.

Those depositors, as well as those at Signature Bank, got a reprieve as banking regulators announced a plan to fully insure all deposits among other measures aimed at preventing the triggering of a major financial emergency.

“The American people and American businesses can have confidence that their bank deposits will be there when they need them,” President Joe Biden said Monday.

Yellen said that in the future, however, uninsured deposits would only be covered in the event that a “failure to protect uninsured depositors would create systemic risk and significant economic and financial consequences.”

For many consumers, this week’s bank failure may bring back memories of the 2008 financial crisis.

Although experts say that this time is different, there is no guarantee that another failure cannot happen again. Certain other institutions have also shown signs of stress this week. First Republic received financial support from other financial institutions to help ease its woes, while Credit Suisse also borrowed billions.

Experts say now is the time to make sure your deposits are protected.

The FDIC coverage limit is $250,000 per depositor, per bank, in each account ownership category.

Since the independent regulatory agency began providing coverage in 1934, no depositor has lost insured funds due to a bank failure. The FDIC is funded by premiums paid by banks and savings associations.

“Most Americans are going to be covered by FDIC insurance because most Americans have less than $250,000 in a specific bank account,” said Ted Jenkin, a certified financial planner and CEO and founder of oXYGen Financial, a financial advisory and wealth management firm based in Atlanta. He is a member of CNBC’s Financial Advisor Council.

The majority of Americans are going to be covered by FDIC insurance.

Ted Jenkins

CEO of oXYGen Financial

The amount insured is based on legal ownership title, according to Jude Boudreaux, a CFP and senior financial planner at The Planning Center in New Orleans who is also a member of CNBC’s Financial Advisor Council.

For example, a married couple with a business can have up to $250,000 insured in an account in one spouse’s name, up to $250,000 insured in an account in the other spouse’s name, and up to $250,000 insured in a business account.

If you want to know if your deposits are FDIC insured, check your bank statement, Jenkin said.

“If you go to a bank or deposit your money anywhere, the first question you want to ask is, ‘The money I’m depositing now, is it FDIC insured?'” Jenkin said.

You can also check the FDIC’s Electronic Deposit Insurance Estimator to see if your funds are insured at your institution and if any portion exceeds coverage limits.

Customers outside a Silicon Valley Bank branch in Beverly Hills, California on March 13, 2023.

Lauren Justice | Bloomberg | Getty Images

One way to increase your FDIC coverage is to open accounts at other banks, especially if you have more than $250,000 in deposits, Boudreaux said.

If you want additional coverage, you may also want to talk to your current bank, Boudreaux suggested. In some cases, they may partner with other FDIC-insured institutions to have larger cash deposits protected and insured.

Small businesses may also want to investigate the possibility of seeking additional coverage through several banks.

Treasury bills are also a strong option now, as short-term bills currently have a good yield and are backed by the full faith and credit of the US government. “They’re as good as it gets from a safety standpoint,” Boudreaux said.

Not all accounts provide FDIC coverage, Jenkin noted. For example, a brokerage account opened with a financial advisor is likely to be covered by the Securities Investor Protection Corporation, or SIPC.

Under FDIC coverage, you will be reimbursed dollar for dollar if your bank fails, plus any interest earned up to the date of default.

Under SIPC, if something happens to your brokerage, you are covered for up to $500,000, with a limit of $250,000 for cash.

However, the protection under the SIPC is limited and in particular does not provide protection if your securities decline in value.

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