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

Account holders at failed Silicon Valley Bank and Signature Bank were lucky in recent days as emergency federal efforts helped protect billions in uninsured deposits.

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

Depositors generally 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 include venture capital firms, small technology companies and entrepreneurs, had uninsured deposits at the time of the bank’s failure. Data from S&P Global Market Intelligence from 2022 showed that 94% of SVB depositors were above the $250,000 FDIC limit.

Those depositors, as well as Signature Bank’s, were given a reprieve as banking regulators announced a plan to fully insure all deposits, among other measures to help prevent a wider financial emergency.

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

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

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

While experts say this time is different, there’s no guarantee there won’t be another outage. Certain other institutions also showed signs of stress this week. First Republic received financial help from other financial institutions to curb 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 any account ownership category.

Since the independent government agency began providing coverage in 1934, no depositor has lost insured funds as a result of a bank failure. The FDIC is funded by contributions paid by banks and savings associations.

“The 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, a certified financial planner and CEO and founder of oXYGen Financial, a financial advisory and investment firm. asset management company based in Atlanta. He is a member of CNBC’s financial advisory board.

The amount of the insurance is based on the legal ownership name, 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 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.

To find out if your deposits are FDIC-insured, check your bank statement, Jenkin said.

“When you go to a bank or put your money somewhere, the first question you want to ask is, ‘The money I’m depositing right now, is it FDIC insured?’” Jenkin said.

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

One way to increase your FDIC coverage is to open accounts with 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 protect and insure larger cash deposits.

Small businesses may also want to explore the possibility of pursuing additional coverage through multiple banks.

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

Not all accounts offer 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 paid back dollar for dollar if your bank fails, plus any interest earned up to the date of the default.

If something happens to your brokerage firm, you’re covered under SIPC for up to $500,000, with a $250,000 cash limit.

However, the protection under SIPC is limited and, in particular, offers no protection if your securities fall in value.