FDIC, banks, and your money: What to know

Bank failures don’t happen often, so the recent collapse of Silicon Valley Bank – which appeared strong just days before its downfall – came as even more of a shock to its investors and customers.

In the wake of the bank’s sudden nosedive, the Federal Deposit Insurance Corporation (FDIC) has reassured customers that deposits would be covered, and industry leaders have tried to calm investors as bank stock prices struggle. In Tennessee, the president and CEO of the Tennessee Bankers Association insisted that banks in the state are strong, citing differences between traditional lenders and the unique business models of Silicon Valley Bank and Signature Bank, which failed just days later.

“Banks are well-capitalized, and that is what we are educating customers on,” Colin Barrett told the Nashville Business Journal.  “The industry is strong. We’ll figure this out and get past it.”

The FDIC’s process for dealing with lost deposits has proven invaluable in the past, particularly amid a wave of bank failures from 2009 to 2011. But customers often don’t know that the FDIC doesn’t cover all depositors or all types of accounts.

Here’s what to know about the FDIC and whether your assets are protected.

A little about the FDIC

Established as an independent agency of the federal government in 1933, the FDIC aims to provide stability and public confidence in the nation’s financial system. It’s funded entirely by premiums paid by financial institutions in return for deposit insurance coverage. As of January 1, 2023, there were 4,706 financial institutions insured by the FDIC.

Credit union deposits are also insured, but those are through the National Credit Union Administration, which operates similarly to the FDIC.

How FDIC insurance works

Almost every bank in the United States is FDIC-insured, which means its customers are automatically covered – but only up to a point. The FDIC insurance limits per customer (per bank) are:

• $250,000 for a single account
• $250,000 for each joint account holder
• $250,000 for each qualified retirement account (such as an IRA or Roth IRA)
• $250,000 for each irrevocable trust
• $250,000 for each beneficiary of a revocable trust

Even with those limits, there are ways to increase FDIC coverage. A customer can open a single account under their name and a joint account with a spouse, for example, for a combined $500,000 in insured deposits. Or a customer could have accounts at different banks, each of which would carry $250,000 worth of FDIC coverage.

Occasionally, the FDIC makes exceptions and covers all deposits in a failed bank regardless of the amount – including in the case of Silicon Valley Bank – but those instances have been rare.

Money market accounts and CDs

Most bank certificates of deposit are also insured by the FDIC for up to $250,000. Some banks offer uninsured CDs, but the potential risk also carries the reward of higher interest rates and values of more than $250,000.

Money market accounts vary in their customer protection. For example, a financial institution’s money market deposit accounts are usually FDIC-insured.  However, money market mutual funds offered by brokerage firms and mutual fund companies are not insured by the FDIC.

Even though bank failures are few and far between, they can happen. If you or your business carry account balances that exceed the $250,000 FDIC insurance cap, it could be worthwhile to consider ways to spread out those savings to guarantee maximum coverage.

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