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

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 have been lucky in recent days when emergency federal efforts ensured the protection of billions in uninsured deposits.

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

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

Learn more about personal finance:
Why our brains are wired to do “bank runs”
What bank failures mean for consumers and investors
What to know about FDIC insurance coverage

However, many of Silicon Valley Bank’s customers, which largely included venture capitalists, small tech companies and entrepreneurs, had uninsured deposits at the time of its bankruptcy. S&P Global Market Intelligence data from 2022 showed that 94% of SVB depositors exceeded the $250,000 FDIC limit.

Those depositors, along with those at Signature Bank, got a reprieve as banking regulators announced a plan to fully insure all deposits, among other measures to help prevent the outbreak of a larger financial emergency.

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

Yellen said that going forward, however, uninsured deposits would only be covered if “the lack of protection for uninsured depositors creates systemic risk and significant economic and financial consequences.”

For many consumers, recent bank failures may bring back memories of the 2008 financial crisis.

Although 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. The First Republic received financial aid from other financial institutions to help curb its woes, while Credit Suisse also borrowed billions.

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

How FDIC Coverage Works

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

Ted Jenkins

CEO of oXYGen Financial

The amount of insurance is based on the property’s legal name, according to Jude Boudreaux, 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 may 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.

How to Check, Strengthen FDIC Protection

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

Lawrence 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 can also go to your current bank, Boudreaux suggested. In some cases, they may work with other FDIC-insured institutions to protect and insure larger cash deposits.

Small businesses may also want to explore the possibility of obtaining additional coverage from several banks.

Other financial safety nets can help

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

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

However, the protection offered by the SIPC is limited and in particular does not offer any protection if the value of your securities falls.

Source link

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top