Dr. Jennifer Thorvaldson,
Ph.D. in Agricultural and Resource Economics
Ⓒ International Foundation for World Freedom
The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the Federal Government, created by Congress in 1933 to maintain stability and public confidence in the nation's financial system.
At FDIC-insured banks, all deposits up to $250,000 are insured. That means that no matter what happens to your bank, the government will pay all your money back as long as your balance doesn’t exceed $250,000. Thus, if you bank at an FDIC-insured bank and the sum total of your deposits is less than or equal to $250,000, then the entirety of those deposits is guaranteed by the government and you would get 100% of your money back if the bank were to fail.
Deposits held in different ownership categories are separately insured, up to $250,000, even if held at the same bank. The different ownership categories can be found here: https://www.fdic.gov/resources/deposit-insurance/financial-products-insured/. Therefore, it is important to a) only bank at FDIC-insured banks and b) not hold more than $250,000 at any single ownership category at a given bank.
If you need to hold more than $250,000 at a bank, it is advisable to either a) open a second account, of a different ownership category at a given bank or b) open an account at a second bank. That way, the funds in the second account (whether of a different ownership type or at a different bank), will be insured (so long as the funds in that second account do not exceed $250,000).
The vast majority of banks are insured by the FDIC; you can check whether your bank is FDIC insured by searching for it using the FDIC’s BankFind Suite tool: https://banks.data.fdic.gov/bankfind-suite/bankfind. Note that credit unions are not insured by FDIC, but they have their own insurance fund, run by the National Credit Union Administration (NCUA), that similary insures deposits of up to $250,000. Also note that the FDIC doesn't cover all types of accounts. Financial instruments such as stocks, bonds, money market funds, cryptocurrency, U.S. Treasury securities, safe deposit boxes, annuities, and insurance products aren't insured by the FDIC.
What happened at Silicon Valley Bank and could it happen to my bank?
Silicon Valley Bank (SVB) was the bank for a lot of technology companies that had accounts that were too big to be fully covered by the FDIC. In fact, more than 90 percent of the deposits at the bank were not insured. When the bank announced it was taking a loss on some of its investments (largely due to rising interest rates and falling bond and mortgage-backed securities prices), depositors got nervous they wouldn’t be able to get their money back if things got worse, and started pulling their money out all at the same time, essentially fulfilling that prophecy – the bank did not have enough cash to meet all those withdrawal requests, and the bank collapsed.
Most banks don’t have as many uninsured deposits as SVB did, and most banks aren’t as heavily concentrated in a single industry as SVB was. Furthermore, the U.S. Federal Reserve Bank has stepped in and taken actions to ease the stress on the U.S. financial system by making extra reserves available to banks in an effort to reduce the chances of additional bank failures. And remember, even if your bank were to fail, so long as your bank is FDIC insured and your account balances do not exceed $250,000, your money is safe.
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