U.S. Banking Crisis: Should You Be Worried?
Unable to meet withdrawal requests triggered by depositor panic, Silicon Valley Bank (SVB) was placed into receivership by the Federal Deposit Insurance Corporation (FDIC) on March 10, 2023. SVB represents the second-largest bank collapse in U.S. history. Two days later, the FDIC announced the closure of a second bank — Signature Bank — and that all depositors of both banks would be paid back in full. (The FDIC more recently announced that New York Community Bancorp’s Flagstar Bank would take on nearly all of the former Signature Bank’s deposits.)
With the media focused on these and other related stories, you might be concerned about your own deposit accounts. The good news is that most individuals don’t need to worry. Here’s why.
FDIC insurance
Deposit accounts at FDIC-insured banks and savings and loans are generally insured up to $250,000 per depositor, per ownership category, per bank. FDIC insurance covers traditional deposit accounts, including:
- Checking accounts
- Savings accounts
- Money market deposit accounts
- Certificates of deposit (CDs)
Coverage includes both the principal and any interest earned as of the date an insured bank closes.
FDIC insurance does not cover investments, even if they are purchased through an FDIC-insured bank. Excluded items include:
- Mutual funds
- Stocks and bonds
- Life insurance policies and annuities
FDIC insurance also does not cover U.S. Treasury securities or safe-deposit boxes.
Accounts with different categories of ownership may be independently insured. For example, a joint deposit account qualifies for up to $250,000 of coverage for each person named as a joint owner. That coverage is in addition to the $250,000 maximum coverage for each person’s aggregated single-owner accounts at that bank. Retirement accounts are considered a separate ownership category as well, though it’s important to note that coverage does not apply to any securities held in the retirement accounts. The FDIC has an interactive tool to help you calculate the total coverage you qualify for at an institution.
Most banks are insured by the FDIC, and most advertise that fact. If you’re not sure, though, you can check on the FDIC website.
Most credit unions have insurance as well
Accounts at most credit unions are insured by the National Credit Union Share Insurance Fund (NCUSIF). The fund is administered by the National Credit Union Administration (NCUA), which like the FDIC, is an independent agency of the federal government and is backed by the full faith and credit of the U.S. Treasury. Some credit unions are not federally insured but are overseen by state regulators and may have private credit insurance.
NCUSIF insurance is similar to FDIC insurance; it covers accounts, including regular share accounts, share draft accounts (similar to checking), money market deposit accounts, and share certificates, but not investment products sold through a credit union. It covers single-owner accounts up to $250,000 per depositor, per insured institution. As with bank deposit accounts, independent coverage may be available for different categories of ownership, including jointly held accounts and retirement accounts. You can estimate your existing coverage by using the calculator at the NCUA’s website.
What you should do
The most important thing not to do is panic. Given the protections in place, you may not need to worry about the safety of your bank or credit union funds.
What you should do is review your accounts in light of FDIC or NCUA coverage limits. If the amount you have on deposit at a single insured institution exceeds the maximum coverage, consider your options.
One option is to use different ownership categories. For example, a joint account held by you and your spouse is insured for up to $500,000 ($250,000 per person). If each of you also opens a separate individual account at the same bank, each account may qualify for up to $250,000 in additional coverage. Individual accounts are a different ownership category than joint accounts.
Another option is to spread funds across multiple banks or credit unions to stay within coverage limits.
If you have questions about your coverage, contact your bank or credit union for guidance.
1) The Wall Street Journal, March 16, 2023
2) FDIC, March 19, 2023
3) The FDIC interactive tool can be accessed at https://edie.fdic.gov/
4) Check for FDIC membership at https://banks.data.fdic.gov/bankfind suite/bankfind
5) The NCUA calculator can be accessed at https://mycreditunion.gov/share-insurance-estimator-home
IMPORTANT DISCLOSURES
Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice. The information presented is general in nature and is not tailored to any individual’s personal circumstances.
Any discussion of tax matters is not intended or written to be used, and cannot be used, to avoid penalties under the law. Taxpayers should seek advice from a qualified tax professional based on their individual situation.
These materials are provided for general information and educational purposes only. They are based on publicly available sources believed to be reliable. However, accuracy and completeness cannot be guaranteed. Information may change at any time without notice.
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