- The federal government helped customers of Silicon Valley Bank and Signature Bank get their funds back this week, even if their deposits weren’t insured.
- 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 limitations. Here’s how to make sure 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 lucky in recent days as emergency federal efforts 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 up to $250,000 of coverage 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 the bankruptcy. S&P Global Market Intelligence data from 2022 shows that 94% of SVB depositors are above the FDIC’s $250,000 limit.
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 a bigger financial crisis from being triggered.
“The American people and American businesses can be confident 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 if “failure to protect uninsured depositors would create systemic risk and significant economic and financial consequences.”
For many consumers, the recent bank failures may bring back memories of the 2008 financial crisis.
While experts say this time is different, there’s no guarantee another failure won’t happen. Some other institutions also showed signs of stress this week. First Republic received bailouts from other financial institutions to help curb its problems, 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 government 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.
“The vast majority of Americans will be covered by FDIC insurance because most Americans have less than $250,000 in a specific bank account,” said Ted Jenkin, certified financial planner and CEO and founder of oXYGen Financial, a financial advisory and wealth management based in Atlanta. He is a member of CNBC’s Board of Financial Advisors.
The vast majority of Americans will be covered by FDIC insurance.
Ted Jenkin
CEO of oXYGen Financial
The amount of insurance is based on the legal title of the property, according to Jude Boudreaux, CFP and senior financial planner at the Planning Center in New Orleans, who is also a member of CNBC’s Board of Financial Advisors.
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’re going to a bank or putting your money somewhere, that’s the first question you want to ask, ‘Is the money I’m depositing now insured by the FDIC?'” 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 FDIC coverage is to open accounts at other banks, especially if you have more than $250,000 in deposits, Boudreau said.
If you want additional coverage, you may also want to talk to your current bank, Boudreau suggested. In some cases, they may work with other FDIC-insured institutions to have larger cash deposits protected and insured.
Small businesses may also want to explore the possibility of seeking additional coverage through multiple banks.
Treasuries are also a strong option now, as short-term bills currently have good yields and are backed by the full faith and credit of the US government. “They’re as good as it gets from a safety standpoint,” Boudreau 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 firm, you’re covered up to $500,000, with a $250,000 cash limit.
However, SIPC protection is limited and in particular does not provide protection if the value of your securities falls.