Even in the wake of several spectacular bank failures that have diminished the funds that backstops deposit insurance, the average bank customer shouldn’t worry too much about losing their money in the event of more banking chaos, experts say.
Key Takeaways
- About half of U.S. adults are worried about whether their insured deposits are still safe after recent bank collapses.
- At the end of 2022, the FDIC's Deposit Insurance Fund had $128.2 billion, equal to 1.27% of all the deposits insured by the government.
- Since then, three banks have collapsed, costing the fund a total of $35.5 billion.
- The fund can continue paying even if it goes into the red, but the debt ceiling fight may complicate that process.
After several highly publicized bank collapses—including the second, third, and fourth-largest ones in history—many bank customers are starting to wonder if their money is truly safe. A Gallup poll last week found that about half of U.S. adults were worried about the safety of the money they’d stashed in banks and other financial institutions.
According to the Federal Deposit Insurance Corporation, those worries are misplaced—the FDIC guarantees deposits up to $250,000, far more than most individual customers have in their accounts.
Still, the FDIC itself doesn’t have unlimited money. If enough banks flounder at once, it could deplete the fund that backstops deposits. However, experts say even in that event, bank patrons shouldn’t worry about losing their FDIC-insured money.
When a financial institution like Silicon Valley Bank fails, the FDIC steps in to get insured depositors all their money back. To do this, it uses the Deposit Insurance Fund, which is paid for by banks themselves. At the end of 2022, the fund had $128.2 billion, equal to 1.27% of all the deposits insured by the FDIC.
Since then, bailing out depositors at Silicon Valley and Signature banks in March cost a total of $22.5 billion, and the First Republic bank rescue in April is likely to cost about $13 billion according to the FDIC.
With costs quickly mounting, it’s easy to imagine a scenario where a cascade of bank failures, especially if they’re larger banks, exhausts the fund completely. Fortunately for depositors, the fund can continue paying even if it goes into the red, as happened in the wake of the great financial crisis in 2009—the law allows the FDIC to borrow up to $100 billion from the U.S. Treasury.
That option might not be available, however, if the bank failures coincided with a breach of the debt ceiling, which could hobble the government’s ability to borrow and lend money.
If the government were to default on its debt, the U.S. have bigger worries than the health of the Deposit Insurance Fund.
“We're going to be worrying about Social Security getting paid, and whether the federal government will have to pay more to borrow money for the rest of eternity,” said David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the nonpartisan Brookings Institution think tank.
In that event, one last institution could still come to the rescue: the Federal Reserve, which, during the financial crisis of 2008, gave “blank check” lending totaling $1 trillion at its peak into the financial system to keep it from collapsing completely.
“The Federal Reserve spent a lot of money that it created itself during the great global financial crisis,” Wessel said. “So if it gets to a point where some humongous bank like Bank of America or JPMorgan fails, which would be devastating, we have evidence now that the Fed will step in.”
Creating a large amount of money out of thin air would stoke inflation down the road, meaning that in the end, the cost of those bank failures would be borne by everyone in the form of higher prices.
The bottom line according to Wessel: money in banks is likely safe so long as it’s protected by the FDIC deposit insurance which—for the moment—covers accounts up to $250,000.
“If I had more than $250,000, I don't think I'd put it in one bank,” Wessel said.
FAQs
One way we do this is by insuring deposits to at least $250,000 per depositor, per ownership category at each FDIC-insured bank. The FDIC maintains the Deposit Insurance Fund (DIF), which: Insures deposits and protects depositors of FDIC-insured banks and. Helps fund our resolution activities when banks fail.
Who protects your money in deposit accounts if the bank fails? ›
A: The FDIC (Federal Deposit Insurance Corporation) is an independent agency of the United States government that protects bank depositors against the loss of their insured deposits in the event that an FDIC-insured bank or savings association fails.
Could FDIC run out of money? ›
Still, the FDIC itself doesn't have unlimited money. If enough banks flounder at once, it could deplete the fund that backstops deposits. However, experts say even in that event, bank patrons shouldn't worry about losing their FDIC-insured money.
Has anyone lost money on uninsured deposits? ›
Uninsured depositors have lost their money in just 6% of all bank failures since 2008. But before that, it was the norm for uninsured depositors to lose it all when a bank went bust.
Is your money safe here's what deposit insurance covers? ›
Q: What is deposit insurance? A: FDIC deposit insurance covers the depositors of a failed FDIC-insured depository institution dollar-for-dollar, principal plus any interest accrued or due to the depositor, through the date of default, up to at least $250,000.
What happens to safe deposit boxes when a bank closes? ›
The FDIC does not insure the contents of safe deposit boxes at banks. If your bank fails, you likely will be able to retrieve the contents of your safe deposit box. If another bank acquires your bank's branches, you can contact that bank to ask about accessing your safe deposit box.
Can banks seize your money if the economy fails? ›
Banks during recessions FAQs
Your money is safe in a bank, even during an economic decline like a recession. Up to $250,000 per depositor, per account ownership category, is protected by the FDIC or NCUA at a federally insured financial institution.
Are banks collapsing in 2024? ›
Republic First Bank reported unrealized securities losses in excess of its equity as early as June 2022. State regulators closed Republic First Bank in April 2024, marking the first bank failure of the year.
Do millionaires worry about FDIC? ›
Millionaires don't worry about FDIC insurance. Their money is held in their name and not the name of the custodial private bank.
Is it true that if the bank account is FDIC insured your money is safe even if the bank fails? ›
The FDIC protects depositors of insured banks located in the United States against the loss of their deposits, if an insured bank fails. Any person or entity can have FDIC insurance coverage in an insured bank.
Bottom line. For the most part, if you keep your money at an institution that's FDIC-insured, your money is safe — at least up to $250,000 in accounts at the failing institution. You're guaranteed that $250,000, and if the bank is acquired, even amounts over the limit may be smoothly transferred to the new bank.
What happens to uninsured funds when a bank fails? ›
By law, after insured depositors are paid, uninsured depositors are paid next, followed by general creditors and then stockholders. In most cases, general creditors and stockholders realize little or no recovery.
Which US banks have the most uninsured deposits? ›
Top 10 US banks with the most uninsured deposits
| Bank / Institution | Total assets ($B) | Total deposits uninsured (%) |
|---|
| Silicon Valley Bank | 209 | 93.8 |
| Bank of NY Mellon | 324.6 | 92 |
| State Street Bank and Trust Co. | 298 | 91.2 |
| Signature Bank | 110.4 | 89.3 |
6 more rowsWhat is NOT covered? The FDIC does not insure money invested in stocks, bonds, mutual funds, life insurance policies, annuities or municipal securities, even if these investments are purchased at an insured bank.
What bank has the highest FDIC insured? ›
Wealthfront also offers some of the industry's highest FDIC protection. Other banks and fintechs offering competitive FDIC insurance include Betterment, Bluevine, SoFi and Ameris Bank, and like Wealthfront, they spread your funds among partnering FDIC-insured banks.
Has FDIC ever paid out? ›
FDIC deposit insurance protects your money in deposit accounts at FDIC-insured banks in the event of a bank failure. Since the FDIC was founded in 1933, no depositor has lost a penny of FDIC-insured funds.
What happens to my deposits when a bank fails? ›
If your bank fails, up to $250,000 of deposited money (per person, per account ownership type) is protected by the FDIC. When banks fail, the most common outcome is that another bank takes over the assets and your accounts are simply transferred over. If not, the FDIC will pay you out.
How do I protect my money if my bank fails? ›
The first line of defense, federal deposit insurance from the FDIC, has worked reliably to date. To avoid a financial hit if your bank fails, stick to insured institutions and account types, stay under account balance limits and use different ownership arrangements.
Where do millionaires keep their money if banks only insure 250k? ›
Millionaires can insure their money by depositing funds in FDIC-insured accounts, NCUA-insured accounts, through IntraFi Network Deposits, or through cash management accounts. They may also allocate some of their cash to low-risk investments, such as Treasury securities or government bonds.
What organization is responsible for ensuring eligible deposits if a bank fails? ›
CDIC insures eligible deposits up to a maximum of $100,000 (principal and interest combined) per depositor per insured category. RRSP, RRIF, RESP, RDSP, TFSA and FHSA are each considered separate insurance categories.
