Is Your Bank a Bad Bet?

 By Catherine Powell

Image courtesy Pixabay

If high inflation and low interest rates weren't bad enough, now it turns out that some of the nation's financial institutions aren't as solvent as they had led us to believe.  At least, that's what the headlines read after two regional banks went belly up last month, sending many Americans into a panic.  While it's true that Silicon Valley Bank and Signature Bank were closed by federal regulators, before you decide to pull all your money out of your bank only to hide it under the mattress, there are a few things you need to know.  

#1: Even if your bank goes bust, as long as you have $250,000 or less deposited, it isn't lost.  The Federal Deposit Insurance Corporation, more commonly known as FDIC, guarantees that your money is safe and sound.  Just as with Signature and Silicon Valley Bank, once the feds take over an insolvent bank, funds will be made available within a few days.  Sometimes this means that FDIC regulators will take control of the bank you do business with, in which case you'll hardly know the difference.  Even if your bank closes its doors for keeps, the FDIC will pay you via check up to the insured balance in your account.  So don't panic if your bank is declared insolvent.  In fact, that's why the FDIC was created, to keep people from staging a run on their bank.

#2: How are joint accounts handled by the FDIC? If you have a joint account with your spouse, partner or significant other, each co-owner is insured up to $250,000 for their portion of the account.  FDIC limits are per depositor, not per account.  That means if you have $250,000 in your joint account and each of you has $125,000 in your savings/checking accounts, you're both covered up to a combined total of $500,000.

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#3: What if you have more than $250,000 to deposit? A bank customer in the US who has more than $250,000 deposited can qualify for additional coverage provided their funds are deposited in more than one ownership category and the federal guidelines for each category is met.  FDIC covers savings and checking accounts, as well as money market accounts and CDs.  They also protect certain retirement accounts, revocable and irrevocable trusts, health saving accounts, business and government accounts, as well as employee benefit accounts and mortgage service accounts.  (For more on this, ask your banker or refer to the Financial Institution Employee's Guide to Deposit Insurance.)

#4: Is it wise to keep your eggs all in one basket? Diversifying your assets is always a prudent decision.  This way if something does happen to one institution, you won't have to worry about bounced checks or late fees from creditors. 

#5: How can businesses protect their assets if they have more than $250,000 on deposit? While it might not be a bad idea to diversify your banking into two or more banks to make sure all your business funds are insured, there is another alternative.  If your business routinely deals with amounts in excess of $250,000, ask your banker about the IntraFi Network.  This banking network allows an individual bank to split their depositor's accounts into amounts less than the $250,000 FDIC limit.  IntraFi essentially provides customers with multiple FDIC insured accounts without having to open and separately track individual accounts.

#6: If you use a third-party provider for payroll, will you be able to pay your employees if their bank becomes insolvent? Since payrolls are one of the biggest expenses for businesses, you should ask your payroll company how their funds are protected from a bank failure.  

Image courtesy Pixabay

#7: What isn't covered by FDIC? Investments such as stocks, bonds, mutual funds, annuities, government securities, life insurance policies, safety deposit boxes, and cryptocurrencies are not covered.

#8: How safe is an investment account? Brokerage accounts are protected up to $500,000 by the Securities Investment Protection Corporation.  This includes a maximum of $250,000 in cash assets.

#9: Are all banks FDIC insured? No.  Credit unions don't qualify for FDIC protection.  However, they are covered by the National Credit Union Share Insurance Fund.  Like the FDIC, the NCUSIF insures deposits up to $250,000 per person, per registered account, per institution.

#10: Who you gonna call?  If you have more than $250,000 in any bank and you aren't sure if all your money is federally protected, feel free to call the FDIC to ask them directly.  That's right, they offer a toll-free helpline at 1-877-ASK-FDIC.

Catherine Powell is the owner of A Plus All Florida Insurance in Orange Park, Florida. To find out more about saving money on all your insurance needs, check out her website at http://aplusallfloridainsuranceinc.com