By |Published On: Mar 12, 2023|Categories: Financial Planning|

On Friday, March 10, 2023, the FDIC took control of Silicon Valley Bank’s assets after the bank collapsed, bringing back memories from the 2008 Financial Crisis. You might be wondering if your bank deposits are safe? Also, how does Federal Deposit Insurance Corporation (FDIC) Insurance work? If my bank fails, what happens to my money?

Silicon Valley Bank

Overwhelmingly the odds are that your bank and deposits are safe. The circumstances around Silicon Valley Bank (“SVB”) seem unique and the US banking system is much safer than it was leading up to the 2008 Financial Crisis.

It is important to note that the FDIC is backing all Silicon Valley Bank deposits, both insured and uninsured. This means that deposits over the typical $250,000 limit will be available.

However, the FDIC typically only insures up to their limit – $250,000. It would be prudent to understand how FDIC Insurance works.

FDIC Insurance Explained

FDIC insurance is how the FDIC protects your deposits in the event of a bank failure. Here are the requirements:

  1. Your bank must be FDIC insured
  2. The standard insurance amount is $250,000 per depositor, per insured bank, for each ownership category
  3. You don’t have to purchase the insurance because accounts held at FDIC insured banks are automatically covered.

You can confirm to see if your bank is FDIC insured. Then you can double-check each ownership category. The ownership categories covered include individual accounts, joint accounts, and revocable trust accounts. The insurable deposit products include checking accounts, savings accounts, money market deposit accounts, and certificates of deposit.

FDIC Insurance Illustrated

This part can be a bit confusing so here is an example. Suppose Jack and Jill hold individual, joint, and revocable trust beneficiary accounts at Gingerbread Bank.

The amounts are as follows:

  1. Jack’s individual account – $250,000
  2. Jill’s individual account – $250,000
  3. Jack and Jill’s joint account – $500,000
  4. Jill’s trust for Jack – $250,000
  5. Jack’s trust for Jill – $250,000

The total amount is $1,500,000. FDIC Insurance will protect the entire amount of Jack and Jill’s accounts. So if Gingerbread bank were to fail, Jack and Jill would receive $1,500,000.

Assets Exceeding the FDIC Limits

If your deposits exceed the FDIC insurance coverage amount, I can purchase short duration US Treasury Bills for you. They have no credit risk so you don’t have to worry about the solvency of your bank. The full faith and credit of the US government backs US Treasury bills.

This is a very challenging time. If you are concerned about your bank and what you could do, please feel free to reach out to me.