Are Your Bank Deposits Safe?

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By Sandra Block and Anne Kates Smith From Kiplinger’s Personal Finance

Since the Federal Deposit Insurance Corporation (FDIC) was created in 1933, no bank customer has lost a penny in insured deposits, even during the darkest days of the 2008-09 financial crisis.

But that didn’t prevent some savers from breaking into a cold sweat in March when Silicon Valley Bank failed and regulators assumed control. It was the largest bank failure since the financial crisis, and it was followed by a cascade of unnerving banking news, including the collapse of Signature Bank. But unless you have a large amount of money in the bank, that is probably something you can cross off your worry list.

The FDIC insures traditional bank deposits—such as checking and savings accounts, money market deposit accounts, and certificates of deposit—for up to $250,000 per depositor, or $500,000 for joint accounts, per bank. The National Credit Union Administration (NCUA)—also a federal agency—provides the same coverage with the same limits for credit unions.

If for some reason you need to stash more than $250,000 in the bank, there are ways to protect funds that exceed that limit. If you like your bank and want to keep all your business there, you can boost coverage by setting up multiple accounts that are titled differently. For example, a married couple could have a joint account insured up to $500,000; two individual accounts, each insured up to $250,000; and two retirement accounts, each covered up to $250,000. That would bring their total FDIC coverage to $1.5 million.

Another option is to open accounts at multiple banks because FDIC coverage limits apply per depositor, per bank. This may seem like a hassle, but there are services that will do the work for you. For example, IntraFi (www.intrafinetworkdeposits.com) will deposit excess funds from checking accounts, money market deposit accounts and certificates of deposits (CDs) at FDIC-insured banks in its network.

Online banks offer convenience and may pay higher interest rates on savings accounts and CDs than their brick-and-mortar counterparts. But if you’re unfamiliar with an institution, use the tool at www.fdic.gov/bankfind or the NCUA tool at www.ncua.gov to make sure your deposits will be protected. The rise in nonbank financial technology companies has led to some confusion about which customers’ deposits are insured, the FDIC says.

Bank failures have been relatively rare in recent years, and banking leaders say the recent turmoil doesn’t signal a broader malaise. SVB primarily served technology start-ups and venture capitalists, and more than 93 percent of its deposits were uninsured. When the bank reported nearly $2 billion in investment losses, word spread quickly on social media, prompting customers to withdraw $42 billion in 24 hours. The panic spilled over to Signature Bank, which served many private and cryptocurrency customers and had a large percentage of uninsured deposits.

Investors can take comfort in assurances from many market experts that the regional banking panic of 2023 seems unlikely to morph into anything like the great financial crisis of 2008. But the risk of recession is undoubtedly higher, and continued market volatility is a given.

©2023 The Kiplinger Washington Editors, Inc. Distributed by Tribune Content Agency, LLC.

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