Should I Worry About My Bank Failing?

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KEY POINTS

  • On the heels of the collapse of Silicon Valley Bank, you may be worried about the money you have in your bank account.
  • The good news is that the FDIC insures deposits of up to $250,000 per person.
  • There are steps you can take to protect deposits beyond that threshold, too.

It's a scary thought, to say the least.

Last week, Silicon Valley Bank collapsed and was put under the control of the Federal Deposit Insurance Corporation (FDIC). It was an announcement that sent shockwaves across the stock market and created a world of panic among consumers with money in various banks.

But do you need to be concerned about your bank failing? And if that happens, will you lose all of your money? Here's what you need to know.

Will your bank collapse, too?

Let's get one thing out of the way. Silicon Valley Bank's demise was largely the result of poor financial decisions made by its management team and unfortunate circumstances that applied to that bank in particular.

In a nutshell, the bank tied up too much of its assets in Treasury bonds that it had to sell at a loss. On the heels of that loss, many companies were quick to withdraw their money from Silicon Valley Bank, leading to a quick collapse with a modern day bank run.

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But many banks have their assets invested in a far more diversified manner and have a much broader client base than Silicon Valley Bank. So for the most part, experts aren't anticipating a broad collapse of the banking industry. As such, if you have your savings account at another bank, you may not be impacted at all.

Your deposits are protected

Most major banks are FDIC-insured. As long as yours is, you should know that your money is protected for up to $250,000.

So, let's say you have a $50,000 CD and another $100,000 in savings. In that case, you're below the $250,000 threshold. So even if your bank were to fold, the FDIC would take over its assets and make you whole on your $150,000. All told, your cash is safe, and you wouldn't be at risk of losing so much as a dime.

Now, what might happen is that you could lose access to your money for a day or two as the FDIC goes through the process of taking over your bank in the event of a failure. But the FDIC commonly acts very quickly in situations like these. Case in point: After Silicon Valley Bank collapsed on Friday, customers were informed they'd have access to their deposits by Monday, the very next business day.

What about larger deposits?

If you're in the fortunate position of having more than $250,000 in cash to your name, then there are steps you can take to protect your money beyond what FDIC insurance will cover. For one thing, that $250,000 limit applies on a per-bank basis. So if you have $400,000 you want to keep in cash savings, you could simply split it up and deposit $200,000 into two separate banks.

Another option is to add a joint holder to your account. In that case, your FDIC insurance limit will increase to $250,000 per depositor, or $500,000 in total.

All told, it's easy to see why a lot of people are spooked in light of what happened to Silicon Valley Bank. But rest assured that the collapse of one bank does not mean your bank is about to be next. And if you're worried, know that your money is nice and protected thanks to the FDIC.

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