Are Your Bank Deposits Safe?

The recent scare in the consumer banking sector raises the question: How safe is your money really…even at a respected financial institution?

Let’s get something out of the way: A bank account that’s covered by the Federal Deposit Insurance Corporation (FDIC) is a safe place to put your money. In fact, exactly $0 of FDIC-insured deposits have been lost since its inception in 1933. The turmoil at Silicon Valley Bank (SVB) has been a reminder of the value (and limitations) of that insurance—more than 85% of the bank’s deposits were uninsured because (in many cases) they were above the maximum limit.

Which accounts qualify for protection? Customer deposits at FDIC-insured banks up to $250,000 per individual, per bank—or $250,000 each for the co-owners of a joint account—are insured. Checking accounts, savings accounts, revocable and irrevocable trustsA legal document that functions as an instruction manual to how you want your money managed and spent in your later years as well as how your assets should be distributed after your death. Assets placed in a trust are generally safe from creditors and can be sold by the trustee in short order, avoiding the lengthy and costly probate process., money market accounts (note that this is different than a money market fund) and certificates of deposit (CDs) all qualify for coverage. The FDIC also provides coverage for deposit accounts held within a traditional or Roth IRA at an FDIC-insured financial institution, although not all IRAA type of account in which funds can be saved and invested without being subject to tax until the account holder reaches retirement age. accounts fall into this category.

The FDIC doesn’t cover annuitiesA financial instrument that pays the holder a guaranteed stream of payments. The annuity is funded by either a lump sum (one-time) or a series of deposits. Once funded, the sum is invested by the insurance company who sold the annuity (the accumulations phase). After a certain trigger (for example, the holder’s retirement or reaching a certain age) payments begin to be issued to the holder (annuitization phase). Annuity payments may be fixed or variable in both amount and in length (some pay out for a designated span of years, others until the holder’s death). or investment products such as stocksA financial instrument giving the holder a proportion of the ownership and earnings of a company., bondsA financial instrument representing an IOU from the borrower to the lender. Bond issuers promise to pay bond holders a given amount of interest for a pre-determined amount of time until the loan is repaid in full (otherwise known as the maturity date). Bonds can have a fixed or floating interest rate. Fixed-rate bonds pay out a pre-determined amount of interest each year, while floating-rate bonds can pay higher or lower interest each year depending on prevailing market interest rates. and money market funds. It also doesn’t protect against fraud or identity theft. (Click here to see a table of what’s covered and the guidelines for each account type.)

Think of it like this: The FDIC functions like any other insurance policy in your financial plan. You hope you’ll never need it, but it becomes incredibly important in certain unlikely circumstances—like a bank run.

The Federal Reserve, FDIC and U.S. Treasury announced that they would cover all deposits at SVB and Signature Bank to prevent further economic damage. Can we assume they will do the same the next time a bank fails? While it’s possible, we would not recommend holding above the FDIC limit at any one insured bank. Every situation is different and there is no guarantee that the actions taken over the weekend will be repeated in the future.

Check here to make sure that your bank is FDIC insured and consider diversifying your cash holdings across multiple banks if they total more than $250,000 per account owner. Please don’t hesitate to contact us for assistance or advice—our firm has extensive experience managing through periods of crisis. We will be able to answer your questions about how your FDIC bank deposit is insured and the safety of your cash accounts.