Questions Regarding FDIC Insurance…aka “Is My Money Safe”?

Most people know that the FDIC stands for Federal Deposit Insurance Corp. The legislation creating it was passed in 1933, during our Great Depression.  It is designed to protect bank depositors against the loss of insured deposits. If you want to read more, go here:

How much is insured?  $250,000 per depositor, per FDIC-insured bank, per ownership type: Individual accounts, joint accounts, business accounts, trust accounts, IRAs, etc.

Why are we worried about this now?  I guess it is possible that someone might not be aware of the current “banking crisis” in the news.  I put that term in quotes deliberately, because there really is NOT a banking crisis.  We have had two banks fail: Silicon Valley Bank in California (Silicon Valley) and Signature Bank in New York.  Both are what is known as “Regional Banks”. The closures were caused in no small part by depositors panicking, and demanding all their money in cash, a so-called Run on the bank. Remember the scene from the movie It’s a Wonderful Life?

Many account holders withdrew the cash balance of their accounts in these banks and placed them in larger banks.  Silicon Valley’s situation was unique in that the vast majority of its depositors were in a single, narrow industry known as venture capital start-up companies.  When the companies had a cash crunch, it triggered the others.

Once that domino fell, a number of other depositors got nervous, and it spread faster than the Coronavirus.  Even investors in Charles Schwab got a little panicked for a day and started selling their shares of Schwab.  While the stock price of Schwab was affected, people eventually realized that while their individual investments may be held (in custody) at Schwab, their accounts are kept completely separate from Charles Schwab the company, or investors who purchase stock shares of Schwab.

What Caused It?  There are a number of factors that contributed to this particular situation, due in part to the actions of the Federal Reserve in raising interest rates so significantly over the last year, which was in itself a reaction to the increase in inflation, which was a reaction to Covid experiences and policies…etc.  Does this description remind you of this picture?

The equally important question is What Stopped the Dominoes from falling?

The answer is primarily that the FDIC and our federal government stepped in and not only guaranteed the depositor’s accounts up to $250,000 but guaranteed ALL these bank depositors above this amount. Was this a good idea?

That is a question that is open for discussion and debate, and many experts are already evaluating it.  The short answer though is that it seems to have reassured depositors for now.

Back to the original and more important question: Is MY money safe?  Generally, the answer to this question is YES.  However, we do not believe we can count on a new comprehensive government policy to cover bank deposits over the already guaranteed $250,000, so that is something that individuals need to examine for themselves.  We know a few individuals who keep far in excess of that amount in single bank accounts, and that is a risk that we can and should avoid.  Keep your bank account balances at or below the $250,000 per bank and type of account.

Other common-sense strategies:

  • Keep some cash easily accessible- individuals have different needs for how much this should be, but perhaps a few thousand. It is a good idea to keep this excess cash in a safe, to prevent theft.
  • Some people feel safer with physical gold, silver, etc. I am going to call that a personal choice, in no small part due to how one would use it for currency – or to buy items you might actually need. But if that is something that comforts you, just be sure again to keep it someplace safe.
  • Stay invested in your diversified investment portfolio. Cash is only good for the very short term, and remember that with inflation still between 5-6%, your cash is not going to benefit you long-term.  Your investments are for your long-term financial goals.
  • Think about purchasing some treasury notes and/or CDs that are paying a higher rate of interest- if you can get 5%, great. You will be coming closer to keeping up with inflation.

There is always a tendency for us to get caught up in the latest crisis of the moment, whatever that happens to be.  It triggers our “flight or fight” receptors and we feel that we must react immediately in some way, and that reaction is what often leads to other problems and unintended consequences (dominoes).  Give yourself time to think, review and analyze situations before deciding the best way forward for yourself.

The Wall Street Journal had a short video posted in today’s issue (3/22/23) that provides some perspective about how the FDIC protects banks. If you have a subscription, you can watch it here: