Banks in Distress: What You Need to Know About the Safety of Your Money

Patrick Villanova, CEPF®   Fri, March 17, 2023  SmartAsset

In less than a week, the U.S. banking system has suffered two of the largest collapses in American history. Regulators shut down Silicon Valley Bank on Friday after customers rushed to withdraw their money as fears rose about the bank's liquidity.  Two days later, regulators shuttered Signature Bank following a similar run on deposits. (Disclosure: SmartAsset, the publisher of this article, has a customer relationship with Silicon Valley Bank.)

To prevent more bank runs, federal regulators quickly moved to insure all deposits at both banks – even accounts that exceeded the Federal Deposit Insurance Corporation's insurance limit of $250,000.

While the extraordinary action meant customers could take some comfort from the government intervention that effectively removed the cap on the FDIC's insurance limit of $250,000, some banking stocks have plunged in recent days amid fears of ongoing instability. With that in mind, we've set out to answer some questions you might have about the safety of your money.

A financial advisor can help guide you in times of economic uncertainty.

What Is FDIC Insurance? Does It Only Apply to Savings Accounts?

Historically, FDIC insurance protected depositors up to $250,000 per bank per account ownership category in the event that an insured bank goes under. FDIC insurance covers money held in deposit accounts, including savings accounts, checking accounts, negotiable order of withdrawal (NOW) accounts, money market deposit accounts, certificates of deposit, cashier's checks, money orders and other official items issued by a bank.

What Doesn't FDIC Insurance Cover?

The FDIC does not protect investments, even if they were purchased through an insured bank. Stocks, bonds, mutual funds, life insurance policies, annuities and other investments are not covered by FDIC insurance.

While insurance companies that sell annuities aren't FDIC-insured, it's worth noting that annuities are protected in a different way. Each state has a nonprofit guaranty organization that insurance companies must join. If a member company fails, the other companies in the guaranty association help pay the outstanding claims.

Meanwhile, the Securities Investor Protection Corporation (SIPC) protects customer assets in the event that a brokerage shuts down. SIPC insurance covers up to $500,000 in assets per customer per institution.

Should I Limit My Deposits to $250,000 Per Bank?

Here's What You Should (and Shouldn't Do) In Response to Banking Turmoil

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https://news.yahoo.com/banks-distress-know-safety-money-172504871.html