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.
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FAQs
One way we do this is by insuring deposits to at least $250,000 per depositor, per ownership category at each FDIC-insured bank. The FDIC maintains the Deposit Insurance Fund (DIF), which: Insures deposits and protects depositors of FDIC-insured banks and. Helps fund our resolution activities when banks fail.
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.
Does deposit insurance help prevent bank runs? ›
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.
How much is the deposit insurance that protects the funds you have in the bank currently at per account? ›
The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category.
Has FDIC ever paid out? ›
Deposit insurance coverage was initially set at $2,500 in 1933. Today, the FDIC provides $250,000 in coverage per depositor, per account. The FDIC first paid claims to depositors of failed banks in the mid-1980s.
Is your money safer in the bank or at home? ›
As long as your deposit accounts are at banks or credit unions that are federally insured and your balances are within the insurance limits, your money is safe. Banks are a reliable place to keep your money protected from theft, loss and natural disasters. Cash is usually safer in a bank than it is outside of a bank.
Can banks seize your money if the economy fails? ›
It indicates an expandable section or menu, or sometimes previous / next navigation options. Your money is safe in a bank, even during an economic decline like a recession. Up to $250,000 per depositor, per account ownership category, is protected by the FDIC or NCUA at a federally insured financial institution.
How can I protect my money from a bank collapse? ›
Ensure Your Bank Is Insured
If a bank or credit union collapses, each depositor is covered for up to $250,000. If your bank or credit union isn't FDIC- or NCUA-insured, however, you won't have that guarantee, so make sure your funds are at an institution covered by deposit insurance.
What happens to my money if my bank collapses? ›
If your bank fails, up to $250,000 of deposited money (per person, per account ownership type) is protected by the FDIC. When banks fail, the most common outcome is that another bank takes over the assets and your accounts are simply transferred over. If not, the FDIC will pay you out.
Should I pull my money out of the bank? ›
Should I pull my money out of my bank? It doesn't make sense to take all your money out of a bank, said Jay Hatfield, CEO at Infrastructure Capital Advisors and portfolio manager of the InfraCap Equity Income ETF. But make sure your bank is insured by the FDIC, which most large banks are.
Some of the disadvantages are the following: Banks have always been subject to moral hazard because they make money from the deposits of others, money they borrowed, or investors' money. As a result, banks are encouraged to take more significant risks when their depositors are covered.
Is your money safe here's what deposit insurance covers? ›
The FDIC insures up to $250,000 per depositor, per FDIC-insured bank, per ownership category. This guarantees consumers that their money is safe if a bank fails, as long as your balances are within the limits and guidelines.
What bank has the highest FDIC insured? ›
Wealthfront also offers some of the industry's highest FDIC protection. Other banks and fintechs offering competitive FDIC insurance include Betterment, Bluevine, SoFi and Ameris Bank, and like Wealthfront, they spread your funds among partnering FDIC-insured banks.
Is it safe to have more than $250000 in a bank account? ›
An account that contains more than $250,000 at one bank, or multiple accounts with the same owner or owners, is insured only up to $250,000. The protection does not come from taxes or congressional funding. Instead, banks pay into the insurance system, and the insurance provides their customers with protection.
Where do millionaires keep their money if banks only insure 250k? ›
Millionaires can insure their money by depositing funds in FDIC-insured accounts, NCUA-insured accounts, through IntraFi Network Deposits, or through cash management accounts. They may also allocate some of their cash to low-risk investments, such as Treasury securities or government bonds.
How does the FDIC protect your deposits? ›
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.
How does the FDIC affect the safety of someone's bank deposits? ›
When a bank has a sign on it that says "Insured by FDIC" it means that if the bank doesn't have enough money to pay back the people it owes money to, including the bank's depositors, and is closed, the FDIC will make sure all of the depositors get their money, up to the insurance limit which is $250,000.
What role does the FDIC play in ensuring your money in a bank? ›
The FDIC protects the money depositors place in insured banks in the unlikely event of an insured-bank failure. Each depositor is insured to at least $250,000 per insured bank. FDIC deposit insurance covers all types of deposits held at an insured bank.
Why is it important to bank in an FDIC bank? ›
Opening an account at an FDIC-insured bank anywhere across the nation ensures that your money is protected in the event of disaster. In addition, when you open an account in an FDIC-insured bank, your money is safe in the unlikely event that the bank fails.
