There's a reason it's important to make sure any bank you put money into is FDIC-insured. FDIC insurance protects your deposits of up to $250,000 as an individual, or up to $500,000 for joint account holders. And to be clear, that limit applies on a per-institution basis.
Here's what that means. Let's say you have a savings account with $50,000, two CDs with $100,000 in each, and a checking account with a $5,000 balance for a total of $255,000 all at the same bank. In that case, if you don't have a joint account holder, you're just over that $250,000 limit. So if your bank were to fail, you'd potentially end up losing $5,000.
But while your deposits in excess of $250,000 aren't protected in theory, they may be protected in actuality if push comes to shove. So if you have more than $250,000 in savings and your bank fails, you're not automatically doomed to lose money.
You could get a lifeline
Earlier this year, when Silicon Valley Bank collapsed, the U.S. government was quick to step in and make depositors whole. A lot of the bank's customers -- notably, businesses -- had funds at Silicon Valley that exceeded $250,000. But ultimately, those who banked there didn't end up losing money.
Now, part of the reason the government stepped in to do that was to avoid a broad bank run and avert a banking industry crisis. If more banks continue to fail, there's no guarantee that the government will step in every time and make sure depositors don't lose any money. And that's important to know.
The best way to protect your money
If you don't want to lose money in the event of a bank failure, there are a couple of steps you'll need to take:
- Only put your money into FDIC-insured banks
- Make sure you don't put more than $250,000 into any individual bank
So, let's say you have $250,000 in savings at one bank and you're interested in opening a $20,000 CD after having received a bonus at work of that amount. Rather than let your total deposits at that initial bank reach $270,000, you can simply open your CD at a different institution. That way, all of your money will be safe.
The $250,000 FDIC insurance limit that applies to individuals is on a per-bank basis. This means that for each bank you have accounts with, you get $250,000 worth of protection, provided each bank holds FDIC insurance.
Of course, many people don't have anywhere close to $250,000 to put in the bank. A recent SecureSave survey found that 67% of Americans couldn't cover a mere $400 emergency expense by pulling from their savings.
But if you have a large amount of cash you want to keep in the bank, there are steps you can take to secure protection -- even if you're looking to sock away well more than $250,000.
These savings accounts are FDIC insured and could earn you 11x your bank
Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts can earn you 11x the national average savings account rate. Click here to uncover the best-in-class picks that landed a spot on our shortlist of the best savings accounts for 2023.
As a financial expert with a deep understanding of banking regulations and consumer protections, I can confidently shed light on the concepts embedded in the article regarding FDIC insurance and its implications for safeguarding deposited funds.
FDIC (Federal Deposit Insurance Corporation) insurance is a crucial safety net for bank deposits in the United States. The FDIC protects depositors' money in case of bank failures, ensuring that individuals and joint account holders are insured up to certain limits. This insurance covers up to $250,000 per depositor, per insured bank, for each account ownership category. Joint accounts receive coverage of up to $500,000.
The concepts mentioned in the article include:
-
FDIC Insurance Limits: The FDIC insures deposits up to $250,000 per depositor, per bank. This limit applies to different account types (e.g., savings, checking, CDs) held within the same bank.
-
Coverage for Joint Accounts: Joint account holders receive coverage up to $500,000, shared between the account holders.
-
Implications of Exceeding Limits: Deposits exceeding the FDIC insurance limit are at risk if the bank fails. In the scenario where a bank collapses, deposits beyond the insured amount may not be guaranteed protection.
-
Government Intervention: While the FDIC is in place to protect depositors, there are instances, as seen with Silicon Valley Bank's collapse, where the government intervenes to prevent depositors from losing money. However, this intervention might not be a guarantee in every bank failure scenario.
-
Protection Strategies: To safeguard deposits, individuals are advised to ensure their bank accounts are held in FDIC-insured institutions and to monitor their deposits to avoid exceeding the $250,000 limit per bank.
-
Diversification of Accounts: Spreading deposits across multiple FDIC-insured banks helps maximize protection by ensuring each account remains within the insurance limit.
-
FDIC Insurance and Savings: Highlighting the importance of FDIC-insured savings accounts, the article emphasizes that even though many people may not have large sums to deposit, those who do can take steps to secure their funds by choosing FDIC-insured options.
Understanding these concepts is pivotal for individuals seeking to protect their savings and investments in the event of a bank failure, ensuring their financial security within the limits provided by FDIC insurance.
