- The federal government helped Silicon Valley Bank and Signature Bank customers get their money back this week, even though their deposits were uninsured.
- If other institutions fail in the future, customers may have to rely on FDIC insurance, Treasury Secretary Janet Yellen said this week.
- Importantly, FDIC insurance has limitations. This way you make sure that your money is fully covered.
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 got a lucky break in recent days when federal emergency measures ensured billions in uninsured deposits were protected.
But the same may not be true the next time another bank fails, Treasury Secretary Janet Yellen said this week.
Depositors generally have up to $250,000 of coverage per bank and account holding class through the Federal Deposit Insurance Corporation, or FDIC.
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However, many of Silicon Valley Bank’s clients, which largely included venture capital firms, small technology companies and entrepreneurs, had uninsured deposits when the bank failed. S&P Global Market Intelligence data from 2022 showed that 94 percent of SVB’s depositors exceeded the $250,000 FDIC limit.
Those depositors, along with those at Signature Bank, were given a reprieve when bank regulators announced plans to fully insure all deposits, among other measures to prevent triggering a larger financial emergency.
“American people and American businesses can trust that their bank deposits will be there when they need them,” President Joe Biden said Monday.
Yellen said that in the future, however, uninsured deposits would only be covered if “failure to protect uninsured depositors would result in systemic risk and significant economic and financial consequences.”
For many consumers, this week’s bank failures may bring to mind the financial crisis of 2008.
Although experts say that this time will be different, there is no guarantee that another failure will not occur again. Certain other institutions have also shown signs of stress this week. First Republic received financial help from other financial institutions to curb its difficulties, while Credit Suisse also borrowed billions.
Experts say now is the time to make sure your deposits are protected.
FDIC coverage is limited to $250,000 per depositor and bank in each account ownership category.
Since an independent government agency began providing insurance coverage in 1934, no depositor has lost insured funds due to a bank failure. The FDIC is funded by insurance premiums paid by banks and savings associations.
“Most Americans are covered by FDIC insurance because most Americans have less than $250,000 in a particular bank account,” said Ted Jenkin, CFP and CEO and founder of oXYGen Financial, a financial advisory and wealth management firm. located in Atlanta. He is a member of CNBC’s Financial Advisor Council.
Most Americans are covered by FDIC insurance.
CEO of oXYGen Financial
The amount of insurance is based on the legal title, says 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 can have up to $250,000 insured in an account in one spouse’s name, up to $250,000 in an account in the other spouse’s name, and up to $250,000 insured in a business account.
If you want to know if your deposits are FDIC insured, check your bank statement, Jenkin said.
“If you’re going to the bank or putting your cash anywhere, the first question you want to ask is, ‘Is the money I’m depositing now 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 coverage limits.
Customers outside the Silicon Valley Bank branch in Beverly Hills, California on March 13, 2023.
Lauren Justice | Bloomberg | Getty Images
One way to improve FDIC protection is to open accounts at other banks, especially if you have more than $250,000 in deposits, Boudreaux said.
If you want extra protection, you can also talk 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 applying for additional coverage through multiple banks.
Government bonds are also now a strong option, as short-term bonds currently have a good yield and the full faith and credit of the US government. “They’re as good as it gets from a safety standpoint,” Boudreaux said.
Not all accounts offer FDIC protection, Jenkin noted. For example, a brokerage account opened with a financial advisor is likely covered by the Securities Investor Protection Corporation, or SIPC.
Under FDIC protection, you’ll be reimbursed dollar for dollar if your bank fails, plus interest income up to the date of default.
According to SIPC, if something happens to your brokerage, you’re covered for up to $500,000, with a cash limit of $250,000.
However, protection under the SIPC is limited and does not provide protection if the value of your security declines.