Recently, the Silicon Valley Bank (SVB) failed without much warning in a matter of days leaving many bank depositors across the country wondering if their deposits were safe. The good news is that SVB was a member of the Federal Deposit Insurance Corporation (FDIC), which means that deposits of up to $250,000 are protected. However, depositors with deposits above these limits were exposed to possible losses, creating panic.
The Federal Deposit Insurance Corporation (FDIC) is a U.S. government agency that provides insurance protection to depositors in case their bank fails. FDIC protection covers all types of deposits, including checking accounts, savings accounts, money market accounts, and certificates of deposit (CDs), up to a specific limit.
The FDIC insurance limit is $250,000 per depositor, per insured bank, for each account ownership category. This means that if you have multiple accounts at the same bank, they may be covered separately if they fall under different ownership categories. For example, a joint account with your spouse would be covered up to $250,000 per person ($500,000 total), while an individual account and a trust account would also be separately covered up to $250,000 each.
FDIC protection applies to national and state-chartered banks that are members of the FDIC. However, it does not cover investments such as stocks, bonds, mutual funds, or annuities or losses due to fraud or theft.
Overall, FDIC protection helps provide a level of security and peace of mind for depositors, knowing that their funds are insured up to a certain amount in case their bank experiences financial difficulties.
What you should do now
If you are holding bank deposits exceeding $250,000 in a single account, consider moving funds above the insurance limit to another FDIC-insured bank or under a separately titled account in your existing bank. Another alternative is a money market mutual fund invested in treasury bills or other government securities. These are typically available through brokerage firms.
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Stewart H. Welch, III, CFP®, AEP, is the founder of THE WELCH GROUP, LLC, which specializes in providing fee-only investment management and financial advice to families throughout the United States. He is the author or co-author of six books, including 50 Rules of Success; J.K. Lasser’s New Rules for Estate, Retirement and Tax Planning- 6th Edition (John Wiley & Sons, Inc.); THINK Like a Self-Made Millionaire; and 100 Tips for Creating a Champagne Retirement on a Shoestring Budget. For more information, visit The Welch Group. Consult your financial advisor before acting on comments in this article.
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