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.
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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.
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.
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.
What happens if FDIC runs 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.
Can the government take money from your bank account during a recession? ›
It indicates an expandable section or menu, or sometimes previous / next navigation options. 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.
Why don t millionaires worry about FDIC insurance? ›
At the end of the business day, the private bank, as custodian of their various accounts, sells off enough liquid assets to settle up for that day. Millionaires don't worry about FDIC insurance. Their money is held in their name and not the name of the custodial private bank.
Do you lose all your money when a bank collapses? ›
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.
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.
Can banks seize your money if the economy fails? ›
The short answer is no. Banks cannot take your money without your permission, at least not legally. The Federal Deposit Insurance Corporation (FDIC) insures deposits up to $250,000 per account holder, per bank. If the bank fails, you will return your money to the insured limit.
What are three things not insured by FDIC? ›
The FDIC does not insure:
- Stock Investments.
- Bond Investments.
- Mutual Funds.
- Crypto Assets.
- Life Insurance Policies.
- Annuities.
- Municipal Securities.
- Safe Deposit Boxes or their contents.
1. Federal Bonds. The U.S. Treasury and Federal Reserve (Fed) would be more than happy to take your funds and issue you securities in return. A U.S. government bond still qualifies in most textbooks as a risk-free security.
Should I take my money out of the bank in 2024? ›
FDIC insurance coverage guarantees up to $250,000 per depositor, per insured bank, for each account ownership category. This means that if you have multiple accounts with the same bank, each account is insured separately up to $250,000.
What is the safest bank in the USA? ›
JPMorgan Chase, the financial institution that owns Chase Bank, topped our experts' list because it's designated as the world's most systemically important bank on the 2023 G-SIB list. This designation means it has the highest loss absorbency requirements of any bank, providing more protection against financial crisis.
Are uninsured deposits safe? ›
Uninsured depositors experienced losses in 63% of bank failures. From 2008 onwards, average costs of resolving failed banks have risen to 18.2% of failed banks' assets, and uninsured depositors have experienced losses in only 6% of bank failures.
Do banks report uninsured deposits? ›
Banks with total assets less than $1 billion are not required to report an estimate of their uninsured deposits, but they are required to report the amount of deposit accounts with balances of $250,000 or more and the number of such accounts.
What might happen if the government did not insure bank deposits? ›
What might happen if the government did not insure bank deposits? Banks would be robbed far more often. People would lose their savings if their banks went out of business.
What banks have the most uninsured deposits? ›
Which Banks Have the Most Uninsured Deposits?
| Top 30 Rank | Bank | Uninsured Deposits (%) |
|---|
| 1 | Silicon Valley Bank* | 93.8 |
| 2 | Bank of New York Mellon | 92.0 |
| 3 | State Street Bank and Trust Co. | 91.2 |
| 4 | Signature Bank* | 89.3 |
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