Is My Money Safe?

The collapse of Silicon Valley Bank and Signature Bank might have you wondering if your bank is next. If so, what happens to your money?

To be clear, analysts don’t expect to see a ripple effect across the banking industry. The Federal Deposit Insurance Corporation already has stepped in and taken control of Silicon Valley Bank and Signature Bank. Because of the government’s intervention, customers of these banks had access to all of their money as of March 13, according to a joint statement by the Treasury, Federal Reserve and FDIC.

However, if you’re concerned whether your money is safe, here’s what you need to know about the protections that are in place at banks and credit unions. 

What happens if a bank fails?

The answer depends on whether it was a federally insured bank.

The FDIC is an independent government agency that insures deposits in banks. There are more than 4,700 FDIC-insured financial institutions in the U.S. If you have an account at an FDIC-insured bank, your account is covered by deposit insurance. 

The FDIC pays deposit insurance within a few days of a bank’s closing by transferring customers’ accounts to another insured bank or sending a check for the amount of the insured balance. Be aware that there is a limit on the dollar amount that deposit insurance covers (more on that below). Deposits that exceed that limit can be harder to recover if a bank fails.

You can use the FDIC BankFind tool to find out if your bank is insured.  

What happens if a credit union fails?

The National Credit Union Share Insurance Fund provides deposit insurance for members of federally insured credit unions, which account for 98% of credit unions. If an insured credit union fails, the National Credit Union Association will transfer members’ accounts to another credit union or issue checks for insured deposit amounts.

 You can find out if your credit union is insured by searching at Find a Credit Union.

What is deposit insurance?

Both the FDIC and NCUSIF insure deposits up to $250,000 per depositor, per institution, per ownership category. You don’t have to apply for deposit insurance. Coverage is automatic when you open an account.

However, not all types of deposits are covered by FDIC and NCUSIF insurance. So it’s important to know what is and is not protected.

Types of deposits that are protected:‍

• Checking accounts
• Savings accounts
• Money market accounts
• Time deposits such as certificates of deposit

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Types of deposits that are NOT protected:‍

• Stocks
• Bonds
• Mutual funds
• Municipal securities
• Annuities
• Life insurance policies 
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Can you have more than $250,000 and be covered?

It is possible to be fully covered with more than $250,000 at one insured bank or credit union if you have accounts in different ownership categories. The most common ownership categories are single owner accounts, joint accounts, certain retirement accounts and revocable trust accounts. 

If, say, you had $250,000 in an individual account and $250,000 in a joint account, the full $500,000 would be covered. However, if you had $50,000 in an individual checking account and $250,000 in an individual savings account, you would exceed the coverage limit by $50,000 because both accounts fall under the same single owner category. 

 Alternatively, if you have more than $250,000, you can be fully covered by dividing your money among accounts at multiple banks or credit unions. To be clear, deposits must be spread over accounts at different institutions, not just different branches of the same institution.

What happens to uninsured deposits?

If you have deposits that exceed $250,000, there is no guarantee that you will get uninsured deposits back if your bank or credit union fails. The financial institution’s assets will be sold, and its debts, including claims for deposits over the insured limit, will be settled. It is possible that you might get a portion or all of your uninsured deposits. However, payments are typically paid periodically over the course of several years as the financial institution’s assets are sold. 

The FDIC and NCUSIF will not cover any deposits in banks or credit unions that aren’t federally insured. That’s why it’s important when opening an account to make sure that the bank or credit union is insured by the FDIC or NCUSIF. 

What happens to the contents of safe deposit boxes?

The FDIC does not insure the contents of safe deposit boxes at banks. If your bank fails, you likely will be able to retrieve the contents of your safe deposit box. If another bank acquires your bank’s branches, you can contact that bank to ask about accessing your safe deposit box. If the failed bank isn’t bought by another bank, the FDIC will contact you about your safe deposit box.

What happens to direct deposits if a bank fails?

If your bank fails and another bank acquires it, any direct deposits you receive will go into a new account that is opened for you at the acquiring bank, according to the FDIC. If your failed bank is not acquired by another bank, the FDIC typically will try to find another bank to accept your direct deposits, at least temporarily.

What happens to automatic payments and uncleared checks if a bank fails?

If your bank fails and another bank acquires it, there usually isn’t an interruption in services. So, checks and automatic payments should clear. 

If the failed bank isn’t acquired and the FDIC has to freeze deposit accounts, outstanding checks or automatic payments made after the bank failure will be returned unpaid, according to the FDIC. You will then have to make sure other funds are available to make payments.

Bottom line

Your money is safe up to certain limits as long as your deposits are in a federally insured bank or credit union. If you have more than the $250,000 deposit insurance limit, you can take steps to cover all of your deposits by spreading them over different account owernship categories or at different banks.

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