Are you in a safe place in your bank account? That’s the question many Americans may be asking themselves after the collapse of Silicon Valley Bank.
The simple answer for most of us is yes.
Standard Federal Deposit Insurance Corporation (FDIC) insurance covers up to $250,000 per depositor, per bank, for each account ownership category for deposit accounts such as savings, checking and certificates of deposit (CDs).
What scared many of Silicon Valley Bank’s customers — until the government guaranteed this weekend that all depositors would be paid — is that their deposits far exceed that insured amount. Fortunately, this is largely not the case for ordinary Americans.
“The vast majority of American households have bank deposits that are well below the $250,000 limit for FDIC insurance, which assures those households that their money is safe,” Mark Zandi, chief economist at Moody’s Analytics, told Yahoo Finance.
“These deposits are fully backed by the US government. This is very different from almost all of SVB’s depositors, who were mostly technology companies, who had deposits over $250,000 and therefore were not insured by the FDIC. But even those depositors won’t lose their deposits because the U.S. government stepped up and insured those deposits as well,” he added. “Households have no reason to worry about withdrawing their money from their bank when they want to.”
Here’s what you need to know about FDIC insurance.
What is insured by the FDIC
To insure bank deposits, Congress created the FDIC, an independent federal agency under the Banking Act of 1933, to restore confidence in the U.S. banking system after more than a third of U.S. banks failed in the Great Depression of 1929.
The FDIC is funded by premiums that banks and savings associations pay for deposit insurance coverage. It receives no appropriations from Congress.
Deposit accounts that the FDIC insures include checking accounts, savings accounts (both statements and passbooks), money market deposit accounts (MMDAs), CDs, order of withdrawal (NOW) accounts, and cashier’s checks, cash orders or other official items issued by an insured bank.
The agency’s insurance is broken down by property category — each insured independently.
There are eight categories of account ownership: single accounts, joint accounts, certain retirement accounts, which include IRAs, revocable trust accounts and irrevocable trust accounts, corporate or business partnership accounts, employee benefit plan accounts, and government accounts.
Let’s see how it can work for you.
If you have $150,000 in a savings account, $50,000 in a checking account, and $100,000 in a CD at Bank A, the total $300,000 you deposited will not be fully insured—$250,000 will be insured and $50,000 will not be covered. This is due to the FDIC-insured bank condition in the “per depositor, per FDIC-insured bank, per account ownership category” parameters.
But if you move $100,000 in CDs to Bank B, then $200,000 to Bank A and $100,000 to Bank B will be fully covered by FDIC insurance.
Alternatively, if the CD containing the $100,000 is a joint account at Bank A, then the full $300,000 in savings, checking and CDs at Bank A will be covered. This is because the coverage limit for joint accounts is $250,000 per joint owner and meets the “for any account ownership” criteria.
If you’re not sure if your money is federally insured, use this FDIC tool — the Electronic Deposit Insurance Estimator — which helps consumers figure out for each bank how much, if any, of their money exceeds coverage limits.
What is not covered by FDIC insurance
Investments — including mutual funds, stocks, bonds, annuities and crypto assets — are not considered deposits. While banks sell non-deposit items such as mutual funds and annuities, they must disclose that they are not insured because they are not deposit accounts, regardless of the amount invested.
Other uncovered assets held in a bank include life insurance policies, safe deposit box contents, and municipal securities.
U.S. Treasury bills, bonds, and notes are also not covered by FDIC insurance, but are backed by the full faith and credit of the federal government.
What other insurances are there?
Federally insured credit unions are also safe because deposits are insured by the National Credit Union Insurance Fund (NCUSIF). The National Credit Union Administration (NCUA), an agency of the US government, administers this insurance, which provides up to $250,000 of coverage per depositor, per institution.
Some credit unions have added additional insurance to insure deposit accounts over the limit. Check with your credit union to find out how much of your funds are insured. For a list of federally insured credit unions, go to NCUA.org.
The Securities Investor Protection Corp. (SIPC) — a nonprofit corporation created by Congress — protects investors against loss of their money and securities, such as stocks and bonds, held by a SIPC member brokerage firm. But there is a $500,000 protection limit, which includes a $250,000 cash limit.
Warning from SIPC: “SIPC does not protect against a fall in the value of your securities. SIPC does not protect individuals who have been sold worthless shares and other securities. SIPC does not protect against losses due to a broker’s poor investment advice or for recommending unsuitable investments.
It is important to recognize that SIPC protection is not the same as protecting your money at an FDIC-insured banking institution, as SIPC does not protect the value of any collateral. Stock market investments are subject to fluctuations in market value. SIPC is not designed to hedge these risks.
Small Business Considerations
Under FDIC rules, all deposits held by a corporation, partnership or unincorporated association (including a for-profit or not-for-profit organization) in the same bank are aggregated and insured up to $250,000, separate from the personal accounts of the owners or members.
For small business owners, there are ways to make sure your deposits are insured for a larger amount.
The easiest way is to open another account at another bank that is also a member of the FDIC and you will be covered for another $250,000. You can also consider opening an account with a joint owner to increase the insured amount.
If your accounts are covered by the IntraFi network deposit program, you are eligible for FDIC insurance coverage of millions of dollars through a network of multiple financial institutions without having to open multiple bank accounts. Instead, you can keep all your money in one bank, as long as that bank is part of the network.
A cash management account (CMA), which typically comes with a check writing, debit card, and interest earning brokerage account, is another way to hold deposits with higher levels of insurance for small business operators. . A non-bank financial services provider offers CMAs and can often insure more than $250,000 by breaking up your funds into smaller amounts and placing them in deposit accounts at other IntraFi Network Deposits bank members.
A MaxSafe account increases FDIC insurance coverage by providing protection for balances of $250,000, up to $3.75 million total per person. Wintrust, the financial holding company that offers MaxSafe accounts, provides the added insurance by distributing deposits across 15 community bank charters. MaxSafe accounts include CDs, money market accounts and IRAs.
One thing to remember: bank failures are rare. Before the Silicon Valley Bank failure, the last bank failure was in October 2020. Since 2001, there have been 562 bank failures, most of them in 2007-2009 during the recession. As of December 2022, there are approximately 4,700 FDIC-insured banks.
Kerry is a senior reporter and columnist at Yahoo Finance. Follow her on Twitter @kerryhannon.
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