What does a bank failure mean? What happened to Silicon Valley Bridge Bank (SVB) and now what’s going on with Credit Suisse? If you lived through 2008 this can feel scary, and even if you didn’t, it still can feel scary.
For now, let's just focus on what you can do to put your mind at ease.
There’s been a lot of talk about FDIC... what does that mean for you?
What is the FDIC?
The Federal Deposit Insurance Corporation (FDIC) is an independent government agency that oversees the banking industry and provides deposit insurance to depositors in American commercial banks and savings banks that are chartered by states but are not part of the Federal Reserve System. This corporation (FDIC) was created by the Banking Act of 1933, and enacted during the Great Depression to restore trust in the American banking system.
The Federal Deposit Insurance Corporation (FDIC) is an independent government agency that oversees the banking industry and provides deposit insurance to depositors in American commercial banks and savings banks that are chartered by states
1. UNDERSTAND “WHERE” YOUR DEPOSITS ARE
It’s important to note that FDIC (Federal Deposit Insurance Corporation) coverage depends on two things:
(1) whether your chosen financial product is considered a “deposit” product; and
(2) whether your bank is FDIC-insured (as a member bank)
· Checking accounts
· Negotiable Order of Withdrawal (NOW) accounts
· Savings accounts
· Money Market Deposit Accounts (MMDAs)
· Time deposits such as certificates of deposit (CDs)
· Cashier's checks, money orders, and other official items issued by a bank
But they don’t cover products that are considered investments. Thes are things like Stock, Bond investments, Mutual funds, Crypto Assets, Life insurance policies, Annuities, Municipal securities, Safe deposit boxes or their contents, or U.S. Treasury bills, bonds or notes*. Even if these were purchased at a bank. U.S. Treasury bills, bonds or notes are a type of investment backed by the full faith and credit of the U.S. government
So, make sure your bank is a member of FDIC & FDIC insured. You can look for some sort of disclosure at the bottom of a bank’s website or marketing materials like the sample below to help make this determination.
Now if you are at a credit union the NCUA (National Credit Union Administration) is responsible for regulating federal credit unions, insuring deposits, and protecting members of credit unions.
Investments at a financially troubled SIPC member brokerage firm are protected when assets are missing from customer accounts under SIPC (Securities Investor Protection Corporation). Companies such as the Charles Schwab & Co., Inc. or Fidelity Investments would be SIPC member companies.
2. UNDERSTAND “WHAT TYPES” OF ACCOUNTS THAT FDIC COVERS
Below is a list of “account types” covered by FDIC Insurance. The standard deposit insurance coverage limit is $250,000 per depositor, per FDIC-insured bank, per ownership category.
NOTE: According to the FDIC website, the rules for revocable trust accounts (including formal trusts, POD/ITF) and irrevocable trust accounts in their brochure will change on April 1, 2024. They also report that there are changes to the rules for mortgage servicing accounts that will take effect on April 1, 2024, and we can learn more about the new changes by reviewing their fact sheet PDF.
3. UNDERSTAND THE TYPE OF ACCOUNTS “THAT YOU HAVE”
Look at the list above, for each category start to notate what accounts you have at individual institutions, their type, balance and how they are titled.
This high-lvel video from the FDIC has some exmaples to address account coverage limits and it is summarized below
4. DETERMINE IF YOUR ACCOUNTS ARE ADEQUATELY COVERED BY THE FDIC
The FDIC website has an online product called EDIE (Electronic depositor insurance estimator) that you can use to figure out on a per bank basis how the insurance rules and limits will apply to your specific group of deposit accounts. It'll help you understand what is actually insured and what portion (if any) exceeds the covered limit at the bank and creates a potential exposure for you.
It'll help you understand what is actually insured and what portion (if any) exceeds the covered limit at the bank and creates a potential exposure for you.
5. MAKE BANKING ADJUSTMENTS IF YOU ARE UNDERINSURED
If you do determine that you have uninsured limits at your bank and consider moving those uninsured amounts to another FDIC member insured bank that will keep within in the coverage limits
Contact your bank representative or financial professional to determine if you need assistance navigating this process. You can view the FDIC website for more information.
Remember, do your homework. Everyone’s situation is different!
Remember, do your homework. Everyone’s situation is different! What is true for me may not be true for the fact pattern of you, your neighbor, or a family member.
This content was developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice, and may not be used for the purpose of avoiding any federal tax penalties. Always consult legal or tax professionals for specific information regarding your individual situation/circumstances. Additionally, the opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security or service.
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