Is the Money in Your Bank Account Safe?

Financial regulators closed down Silicon Valley Bank (SVB) on Friday, marking the largest U.S. bank failure since the 2008 financial crisis. Over the weekend, regulators took control of yet another lender, Signature Bank, which faced a crisis of confidence after the failure of SVB. Regulators took action to backstop both banks’ uninsured depositors and made significantly more funds available to the entire banking system for added liquidity.

The Federal Reserve and the US Treasury Department also used emergency lending authorities to establish a new facility to help meet demand from bank withdrawals. Regulators indicated that all depositors at SVB would have access to all of their money earlier this morning. This means that all depositors were made whole by the government, regardless of the dollar amount on deposit.

Silicon Valley Bank was the 15th largest bank in the US, and clearly was “too big to fail”. This was yet another government bailout that helped divert a domino effect that could have led to a nationwide financial crisis.

First Republic Bank was also at risk, since many depositors were withdrawing their money. Fortunately, they took the necessary steps to secure financing by obtaining additional funding from the Federal Reserve and JP Morgan Chase. It’s likely that there may be other banks in similar situations. In times like this, it is very important that you are familiar with the rules regarding the Federal Deposit Insurance Corporation (FDIC).

For further information, the following is an excerpt from page 19 of the second edition of my book, Financial Independence (Getting to Point X): A Comprehensive Tax-Smart Wealth Management Guide, under the heading “What is the FDIC?”

“It is important to understand the added safety and reduced risk of saving your money with the protection of the FDIC. For some people, having the peace of mind of knowing their money is guaranteed to be returned to them is priceless. Traditional types of bank accounts, such as checking accounts, savings accounts, and CDs, are insured by the FDIC. Banks also may offer what is called a money market deposit account, which earns interest at a rate set by the bank and usually limits the customer to a certain number of transactions within a stated period of time.

All of these types of accounts generally are insured by the FDIC up to the legal limit of $250,000 per depositor, per institution, and sometimes even more for special kinds of accounts or ownership categories. For more information on deposit insurance, go to the FDIC website at www.fdic.gov.”

In summary, the funds you have in a bank account are safe, but you want to make sure you follow the guidelines set forth by the FDIC. Please remember that the FDIC insures you up to $250,000 per account title at each bank you have your money deposited in.

Over the past several months, I have been encouraging clients who had idle cash to consider putting some of their money to work by investing in short-term US T-bills. Unlike the FDIC, US T-bills are 100% guaranteed by the federal government regardless of dollar amount, offer more attractive interest rates, and are free of state and city income tax. This continues to be my number one tax-smart investment strategy for idle cash.

If you are concerned about the FDIC $250,000 limit, please feel free to call my office, and one of my financial service representatives will be more than happy to give you additional information on the options available to you.

John J. Vento, CPA, MBA, CFP®

Vento Tax & Wealth Management Group