The sudden collapse of Silicon Valley Bank (SVB) and New York's Signature Bank over the past few days is highlighting the importance of Federal Deposit Insurance Corp. (FDIC) insurance for all consumers.
Most Americans probably don't think twice about the fine print on their bank's website advertising that they're part of the FDIC. But during a financial crisis, the FDIC offers critical protections.
How does FDIC insurance work?
FDIC's protection stems from the Great Depression. It was created in the early 1930s to restore consumers' faith in the U.S. banking system.
In the event of a bank's failure, the agency protects cash valued up to $250,000 in deposit accounts. Per depositor, per FDIC-insured bank, per account type, that includes:
- checking accounts
- savings accounts
- money market deposit accounts
- certificates of deposit (CDs)
This does not include:
- stocks
- bonds
- other investments such as mutual funds or crypto assets (but if your brokerage fails, you may have some protection from the Securities Investor Protection Corp)
"Savings accounts are all pretty much the same, so long as your bank is FDIC-insured and you stay within the FDIC limits, your money will be safe and sound, backed by the full faith and credit of the U.S. government," says Gary Zimmerman, CEO of MaxMyInterest, an intelligent cash management platform. "Make sure your money is held directly in your own name, in your own FDIC-insured savings accounts."
The FDIC's website has a search tool in which you can check whether your bank is FDIC-insured. Again, the maximum $250,000 each depositer has protected is per bank and per account type. So if you have a joint savings account with your spouse, up to $500,000 is protected in that account. And then if you have your own individual account at the same bank, that's protected up to $250,000. If you have another $250,000 at a different financial institution, that's covered by FDIC insurance as well.
"If you have deposit levels that exceed the FDIC guarantee at your bank, it’s time to contact that bank and discuss your options," says Jennifer White, senior director of banking and payments intelligence at J.D. Power.
While it might be rare for an individual to have more than $250,000 in a single account, many businesses do, and their accounts have to be under this limit in order to qualify for FDIC insurance. Credit unions offer a different kind of insurance through the National Credit Union Share Insurance Fund, insuring deposits up to $250,000.
"The first bank failure since 2020 is a wake-up call for people to always make sure their money is at an FDIC-insured bank and within FDIC limits and following the FDIC's rules," says Matthew Goldberg, an analyst at Bankrate, noting that the FDIC's Electronic Deposit Insurance Estimator feature can help people and businesses figure out how much of the deposits are protected.
Is Silicon Valley Bank insured?
While Silicon Valley Bank is FDIC-insured, one of the unique aspects of the institution is the number of depositors whose accounts were over the FDIC limit: More than 93% of the domestic deposits at SVB were above $250,000. An outsize number of SVB's clients were startups with a lot of money on hand from venture capitalists.
"SVB is also not your average regional bank," says White. "They are a niche bank catering to the venture capitalist crowd and are not a traditional everyday consumer bank."
As some founders and venture capital investors pointed out, the fall of SVB meant there were companies at risk of being unable to make payroll if they couldn't get their deposits recouped. Some financial experts worried the run on deposits could spread to other regional banks across the country, affecting more businesses and workers.
Ultimately, federal banking regulators decided to make all Silicon Valley Bank depositors whole: The FDIC and the Federal Reserve announced Sunday that all depositors will be able to access "all of their money starting Mon., March 13."
"No losses associated with the resolution of Silicon Valley Bank will be borne by taxpayers," the FDIC said in a press release. The money will come from the Deposit Insurance Fund—which is mainly funded by quarterly fees levied on banks—as well as liquidated assets from SVB. Those losses to the fund "will be recovered by a special assessment on banks, as required by law."
That said, taxpayers end up paying the bill in a roundabout way, says William Luther, director of the American Institute for Economic Research's Sound Money Project: "Although the statutory incidence of these taxes falls on banks, they pass along some of the cost to their customers in the form of higher fees and lower-quality services."
