Two large banks in the United States, Silicon Valley Bank and Signature Bank, have recently failed. Most people are aware of it, and it has left many people wondering if their money is safe in a bank. Besides the bank failures, other economic conditions have added to the confusion causing people to wonder how to protect your money.
The Banks That Failed, and Why
Nearly every bank in the United States is insured by the Federal Deposit Insurance Corporation (FDIC). When the Silicon Valley Bank (SVB) and the Signature Bank failed, the FDIC took over the banks, ABC7Chicago said.The problem that the SVB had was that it invested billions of dollars in the 10-year Treasury bonds. These bonds usually perform very well—typically gaining about 10 percent interest annually. Unfortunately, the economy was poor and they underperformed. The bank run led to the bank selling them for a loss to give customers their cash.
The result was that too many people tried to withdraw their money, which hurt the bank further because it could not pay out enough to meet the demand. The collapse brought in the FDIC, which has promised that every investor will get all their money back—even amounts that far exceeded the insured amount. So far, this is what the FDIC has always done in the past.
Another large bank, the First Republic, is on the verge of collapse. Several Wall Street banks are developing a plan to rescue it with a $30 billion package.
About Your Money in the Bank
Most banks and online banks have FDIC coverage that insures your money up to $250,000. You will need to inquire at your bank or on its website to determine if your bank is insured. If it is not, withdraw your money and put it elsewhere. Some banks will insure people for more than that, but that amount is common with most banks. Credit unions are insured by the National Credit Union Administration (NCUA). If your bank is not FDIC-insured, your money could be at risk.The $250,000 is the insurance coverage given per person per account type, which means you could have up to $250,000 in your checking account, another $250,000 in a savings account, another $250,000 in a retirement account, etc.—and it is all insured. It also means that if you have a joint account, your money is insured for up to $500,000. Forbes warns that not every kind of account is covered by the FDIC. Chase claims that they also cover:
- individual retirement accounts (IRAs)
- self-directed 401(k)s
- self-directed Keogh plan accounts
- revocable and irrevocable trusts
- and others
Replacing Your Money Could Take Some Time
If a bank does fail, the FDIC will take over—as it did the SVB. The bank may then be turned over (sold) to another bank that can cover the financial burden, or it may continue to be controlled by the government. Although you will get your insured monetary value back, it may not happen overnight.The Associated Press says that the FDIC historically has provided customers of failed banks their money within just a few days. They would either create a new account at a different insured bank or give them a check for their money.
What to Do with Larger Deposits
If you have more than the insured limit to deposit, you can get around this problem by putting money up to the limit in multiple banks. This step would make your money even safer because the likelihood of several banks in the same area collapsing would be very rare. Forbes mentions that in 2020, there were only four banks that collapsed.If your business has more than the FDIC-insured limit to deposit and you do not want to put it in the same bank, there are ways to simplify depositing the money into multiple banks. CBSNews mentions a company called IntraFi that takes large deposits and insures multimillion-dollar amounts through the FDIC and then distributes the money to various banks and other investment sources according to your financial goals.
It is generally not a good idea to keep your money at home. You could lose it in a natural disaster, a fire, or a robbery—and it would be uninsured.
How Millionaires Protect Their Money
One way to protect your money is to learn from millionaires—if you have enough money. According to SmartAsset, millionaires keep about 25 percent of their money in cash or cash equivalents. These accounts include CDs, money market mutual funds, and Treasury bills. They keep their money easily accessible when needed. They are often tight with their money, but always keep enough cash on hand for emergencies or investment opportunities.A Zero-Balance Bank Account for Businesses
Zero-balance bank accounts are only offered to businesses and always maintain a zero balance. At the start of the day, when money is needed, money is transferred into the zero-balance bank account from a master account. Then, all the unused money is returned to the master account at the end of the day—always maintaining a zero balance at the end of each day.If you want to protect your money and have more than the insured amount of money in a single account, it may be time to remedy that potential problem. If you are single, you could move some money to other accounts or open accounts at other banks. Married couples could open two individual accounts and one joint account at the same bank, which would enable them to keep $1 million at the same bank. You may also want to look into some investment opportunities to diversify your assets even more.
The Epoch Times Copyright © 2022 The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
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