The failures of Silicon Valley Bank and Signature Bank — which catered mostly to the tech industry and were the second- and third-biggest bank failures in U.S. history — have some people worried about their money.
Is there any reason you should be worried about bank failures? And what can you do to protect yourself?
Here’s what you need to know:
WHAT STARTED THIS?
It started when too many depositors tried to withdraw their money from Silicon Valley Bank in Santa Clara, California. That’s known as a bank run.
The bank had to sell treasury bonds and other securities it owned right away in an effort to have more cash on hand to give those depositors their money, and doing that meant having to sell at a steep loss.
Even then, more people kept trying to withdraw money as word of the situation spread, causing the bank to fail.
Government banking regulators took control of New York’s Signature Bank soon after, saying that move was necessary to protect depositors after too many people withdrew money in a short span there, too.
In response, regulators guaranteed all deposits at the two banks. And they created a program to help shield other banks from a similar run on deposits.
IS MY MONEY SAFE?
Yes, it is — if your money is in a bank insured by the Federal Deposit Insurance Corp., which nearly all banks are, and you have less than $250,000 there. If the bank fails, you’ll get your money back.
To make sure your bank is FDIC-insured, you can look for the FDIC logo at teller windows or on the entrance to your bank branch or just ask.
Credit unions are insured by the National Credit Union Administration.
WHAT IF I HAVE MORE THAN $250,000 IN A BANK?
If you have more than $250,000 in an individual account, which most people don’t, the amount over $250,000 is considered uninsured, and experts recommend that you move the remainder of your money to a different financial institution, said Caleb Silver, editor in chief of Investopedia, a financial media website. Joint accounts are insured up to $500,000.
CAN I TELL IF MY BANK WILL FAIL?
Federal officials have been taking steps to make sure other banks aren’t affected.
“You shouldn’t be too concerned about your money if it’s in one of the bigger banks and even in some of the regional banks and the credit unions,” Silver said.
But if you’re worried about your bank closing in the near future, there are warning signs you can watch out for, according to Silver:
- Watch the stock price of your bank.
- Keep an eye on the quarterly and annual reports from your bank.
- Start a Google alert for your bank so you’ll see if there are news stories about it.
You want to pay close attention to the way your bank is behaving, Silver said.
“If they’re trying to raise money through a share offering or if they’re trying to sell more stock, they might have trouble on their balance sheet,” he said.
SHOULD I LOOK FOR ALTERNATIVES?
If you have more than $250,000 in your bank, there are a few things you can do:
- Open a joint account. You can protect up to $500,000 by opening a joint account with someone else, such as your spouse, said Greg McBride, chief financial analyst for Bankrate, a financial services company.
“A married couple can easily protect $1 million at the same bank by each having an individual account and together having a joint account,” McBride said.
- Move your money to another financial institution. Doing so and having no more than $250,000 in each account will ensure that your money is insured by the FDIC, McBride said.
- Do not withdraw cash. Despite the recent uncertainty, experts don’t recommend withdrawing cash from your account. Keeping your money in financial institutions rather than in your home is safer, especially when the amount is insured.
“It’s not a time to pull your money out of the bank,” Silver said.
Even people with uninsured deposits usually end up getting nearly all of their money back when a bank fails.
“It takes time, but generally all depositors — both insured and uninsured — get their money back,” said Todd Phillips, a consultant and former attorney for the FDIC. “Uninsured depositors may have to wait some time and may have to take haircut where they lose 10% to 15% of their savings, but it’s never zero.”
