Even in the wake of several spectacular bank failures that have diminished the funds that backstops deposit insurance, the average bank customer shouldn’t worry too much about losing their money in the event of more banking chaos, experts say.
Key Takeaways
- About half of U.S. adults are worried about whether their insured deposits are still safe after recent bank collapses.
- At the end of 2022, the FDIC's Deposit Insurance Fund had $128.2 billion, equal to 1.27% of all the deposits insured by the government.
- Since then, three banks have collapsed, costing the fund a total of $35.5 billion.
- The fund can continue paying even if it goes into the red, but the debt ceiling fight may complicate that process.
After several highly publicized bank collapses—including the second, third, and fourth-largest ones in history—many bank customers are starting to wonder if their money is truly safe. A Gallup poll last week found that about half of U.S. adults were worried about the safety of the money they’d stashed in banks and other financial institutions.
According to the Federal Deposit Insurance Corporation, those worries are misplaced—the FDIC guarantees deposits up to $250,000, far more than most individual customers have in their accounts.
Still, the FDIC itself doesn’t have unlimited money. If enough banks flounder at once, it could deplete the fund that backstops deposits. However, experts say even in that event, bank patrons shouldn’t worry about losing their FDIC-insured money.
When a financial institution like Silicon Valley Bank fails, the FDIC steps in to get insured depositors all their money back. To do this, it uses the Deposit Insurance Fund, which is paid for by banks themselves. At the end of 2022, the fund had $128.2 billion, equal to 1.27% of all the deposits insured by the FDIC.
Since then, bailing out depositors at Silicon Valley and Signature banks in March cost a total of $22.5 billion, and the First Republic bank rescue in April is likely to cost about $13 billion according to the FDIC.
With costs quickly mounting, it’s easy to imagine a scenario where a cascade of bank failures, especially if they’re larger banks, exhausts the fund completely. Fortunately for depositors, the fund can continue paying even if it goes into the red, as happened in the wake of the great financial crisis in 2009—the law allows the FDIC to borrow up to $100 billion from the U.S. Treasury.
That option might not be available, however, if the bank failures coincided with a breach of the debt ceiling, which could hobble the government’s ability to borrow and lend money.
If the government were to default on its debt, the U.S. have bigger worries than the health of the Deposit Insurance Fund.
“We're going to be worrying about Social Security getting paid, and whether the federal government will have to pay more to borrow money for the rest of eternity,” said David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the nonpartisan Brookings Institution think tank.
In that event, one last institution could still come to the rescue: the Federal Reserve, which, during the financial crisis of 2008, gave “blank check” lending totaling $1 trillion at its peak into the financial system to keep it from collapsing completely.
“The Federal Reserve spent a lot of money that it created itself during the great global financial crisis,” Wessel said. “So if it gets to a point where some humongous bank like Bank of America or JPMorgan fails, which would be devastating, we have evidence now that the Fed will step in.”
Creating a large amount of money out of thin air would stoke inflation down the road, meaning that in the end, the cost of those bank failures would be borne by everyone in the form of higher prices.
The bottom line according to Wessel: money in banks is likely safe so long as it’s protected by the FDIC deposit insurance which—for the moment—covers accounts up to $250,000.
“If I had more than $250,000, I don't think I'd put it in one bank,” Wessel said.
FAQs
The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the U.S. government that protects and reimburses your deposits up to the legal limit of $250,000 if your FDIC-insured bank fails.
Is it true that if the bank account is FDIC-insured your money is safe even if the bank fails? ›
FDIC deposit insurance protects your money in deposit accounts at FDIC-insured banks in the event of a bank failure. Since the FDIC was founded in 1933, no depositor has lost a penny of FDIC-insured funds.
How does deposit insurance prevent a bank from running? ›
The role of deposit insurance is to stabilize the financial system in the event of bank failures by assuring depositors they will have immediate access to their insured funds even if their bank fails, thereby reducing their incentive to make a "run" on the bank.
Who protects your money in deposit accounts if the bank fails? ›
A: The FDIC (Federal Deposit Insurance Corporation) is an independent agency of the United States government that protects bank depositors against the loss of their insured deposits in the event that an FDIC-insured bank or savings association fails.
What are the disadvantages of a safe deposit box? ›
Pros and Cons
- Unlike bank accounts, the contents are not insured.
- Safes can only be accessed during the bank's business hours.
- Contents can still be lost due to fire, flood, or other disasters.
Be mindful not to use your bank safe deposit box to store anything you might need to access quickly or when the bank is not open. That could include passports and originals of your "powers of attorney" that authorize others to transact business or make decisions about medical care on your behalf.
What happens to my CD if the bank fails? ›
The FDIC Covers CDs in the Event of Bank Failure
But the recent regional banking turmoil may have you concerned about your investment in case of a bank failure. CDs are treated by the FDIC like other bank accounts and will be insured up to $250,000 if the bank is a member of the agency.
Can you lose money in an FDIC-insured account? ›
FDIC insurance is backed by the full faith and credit of the United States government. Since the FDIC began operations in 1934, no depositor has ever lost a penny of FDIC-insured deposits.
Can the government take money from your bank account in a crisis? ›
The government can seize money from your checking account only in specific circ*mstances and with due process. The most common reason for the government to seize funds from your account is to collect unpaid taxes, such as federal taxes, state taxes, or child support payments.
Can banks seize your money if the economy fails? ›
Banking regulation has changed over the last 100 years to provide more protection to consumers. You can keep money in a bank account during a recession and it will be safe through FDIC and NCUA deposit insurance. Up to $250,000 is secure in individual bank accounts and $500,000 is safe in joint bank accounts.
The FDIC provides deposit insurance to protect your money in the event of a bank failure. Your deposits are automatically insured to at least $250,000 at each FDIC-insured bank.
Should I pull money out of the bank? ›
In short, if you have less than $250,000 in your account at an FDIC-insured US bank, then you almost certainly have nothing to worry about. Each deposit account owner will be insured up to $250,000 — so, for example, if you have a joint account with your spouse, your money will be insured up to $500,000.
What are three things not insured by FDIC? ›
The FDIC does not insure:
- Stock Investments.
- Bond Investments.
- Mutual Funds.
- Crypto Assets.
- Life Insurance Policies.
- Annuities.
- Municipal Securities.
- Safe Deposit Boxes or their contents.
Your money is safe at Capital One
The FDIC insures balances up to $250,000 held in various types of consumer and business deposit accounts.
What if the FDIC runs out of money? ›
Still, the FDIC itself doesn't have unlimited money. If enough banks flounder at once, it could deplete the fund that backstops deposits. However, experts say even in that event, bank patrons shouldn't worry about losing their FDIC-insured money.
Is it safe to keep money in a safe deposit box? ›
The contents of your box aren't insured by the FDIC, which means if there are any disasters, whatever is in your box isn't protected. Access may be limited due to the bank or bank vault's opening hours, and you could also lose whatever is in your box if you fail to pay the rent or fees.
What is the safest way to protect your money in a bank? ›
Key Takeaways. Savings accounts are a safe place to keep your money because all deposits made by consumers are guaranteed by the FDIC for bank accounts or the NCUA for credit union accounts. Certificates of deposit (CDs) issued by banks and credit unions also carry deposit insurance.
How do I protect money above my FDIC limit? ›
Here are four ways you may be able to insure more than $250,000 in deposits:
- Open accounts at more than one institution. This strategy works as long as the two institutions are distinct. ...
- Open accounts in different ownership categories. ...
- Use a network. ...
- Open a brokerage deposit account.
How to Protect Large Deposits over $250,000
- Open Accounts at Multiple Banks. ...
- Open Accounts with Different Owners. ...
- Open Accounts with Trust/POD [pay-on-death] Designations. ...
- Open a CD Account, or Money Market Account, with a bank that offers IntraFi (formerly CDARs) services.
