Is my money safe? What you need to know about bank failures.
The recent failures of Silicon Valley Bank and Signature Bank, which catered mostly to the tech industry, may have you worried about your money. They were the second- and third-biggest bank failures in U.S. history.
It all started last week when too many depositors tried to withdraw their money from Silicon Valley Bank at once, resulting in a bank run.
The bank had to sell treasury bonds and other securities at a steep loss to give customers their cash, and word spread fast on social media, contributing to the bank's sudden failure. Regulators took control of New York-based Signature Bank soon after, saying it was necessary to protect depositors after too many people withdrew money.
In response, regulators guaranteed all deposits at the two banks and created a program to help shield other banks from a run on deposits.
Here's what you need to know about your own money.
Are my deposits protected?
Yes, all deposits up to $250,000 are insured by the Federal Deposit Insurance Corp. The FDIC has a solid track record of insuring deposits above its cap, too.
Nearly all banks are FDIC insured. You can look for the FDIC logo at bank teller windows or on the entrance to your bank branch.
Credit unions are insured by the National Credit Union Administration.
Individuals or businesses with large deposit amounts are encouraged to spread the funds across different financial institutions given that the FDIC insures up to $250,000 per depositor, per bank for each account type.
Federal officials have implemented measures to make sure customers at other banks don't fret and withdraw their deposits.
Is my bank going to fail?
If you are worried about your bank closing in the near future, there are telltale signs of a bank that's in trouble, according to Caleb Silver, editor in chief of investment site Investopedia.
He recommends that bank clients:
- Watch the bank's stock price.
- Keep an eye on the bank's quarterly and annual reports.
- Set a Google alert for the bank to monitor news coverage.
Pay close attention to the way your bank is behaving, Silver said.
"If they're trying to raise money through a share offering or if they're trying to sell more stock, they might have trouble on their balance sheet," said Silver.
Should I look for alternatives?
If you have more than $250,000 in your bank, there are a few things you can do, including opening a second, joint account.
You can protect up to $500,000 by opening a joint account with a spouse, according to Greg McBride, chief financial analyst at Bankrate, a financial services company.
"A married couple can easily protect a million dollars at the same bank by each having an individual account and together having a joint account," he said.
You can also open up an account at another financial institution to spread out your deposits so that each falls under the FDIC insurance cap.
Do not withdraw cash
Despite the recent turmoil, experts don't recommend withdrawing cash from your account. Keeping your money at a bank rather than in your home is safer, especially when it is insured.
"It's not a time to pull your money out of the bank," Silver said.
Even people with uninsured deposits usually get nearly all of their money back.
"It takes time, but generally all depositors — both insured and uninsured — get their money back," said Todd Phillips, a consultant and former attorney at the FDIC. "Uninsured depositors may have to wait some time, and may have to take haircut where they lose 10 to 15% of their savings, but it's never zero."
