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Getting Ahead: FDIC – your bank account insurance

Posted Apr 12, 2023 8:53 AM
By Patricia Jones, Alliance Community Task Force: Creating Opportunity

Last month Silicon Valley Bank collapsed, the second-largest bank failure in U.S. history, following Seattle’s Washington Mutual in 2008. In one day, panicking depositors withdrew $42 billion from their accounts after social media posts questioned the bank’s stability when it planned to sell stocks to raise cash. The bank held long-term Treasury bonds that were losing value as interest rates climbed, so it was difficult to sell them to get cash needed for day-to-day operations.

When a second bank failed a few days later, the federal government stepped in to guarantee all deposits in both banks. They wanted to prevent runs on other banks, which would create a nation-wide financial crisis. They also knew that these banks held payroll accounts for several businesses, and if they were closed, it would take some time for workers to receive their paychecks.

After our financial crisis in 2008, Congress passed the Dodd-Frank bill to regulate banks more closely. In 2018 Congress and President Trump loosened these restrictions. Many economists and politicians are calling for the regulations to be reinstated.

One term keeps popping up in all these discussions – FDIC. The Federal Deposit Insurance Corp (FDIC) was established during the Great Depression; bank runs were common in the 1930’s. FDIC guarantees that your bank deposits are safe, even if the bank goes under. Premiums for this insurance are paid by banks, and they protect up to $250,000 in an individual’s account, $250,000 for each person’s share in a joint account.

FDIC insurance covers money in checking, savings, and money market accounts, and certificates of deposit (CDs). FDIC also guarantees official items issued by a bank, such as cashier’s checks and money orders and specialized accounts like IRAs. It does not protect things like insurance policies or stocks, even if you bought those at a bank. All the banks in Box Butte County are FDIC insured.

Not all of us manage our money through banks. Box Butte County has four credit unions. Is our money safe in them? The deposits in these four credit unions are covered by NCUA, the National Credit Union Administration. Like FDIC, it protects up to $250,000 per credit union member via the National Credit Union Share Insurance Fund. It also covers checking, savings and money market deposit accounts, certificates of deposit, cashier’s checks, and money orders.

If your financial institution fails, how do you get your money back? You don’t have to do anything. FDIC or NCUA will contact you with information about how your funds will be returned. Historically, the FDIC and NCUA insurance programs cover losses within a few days after a bank or credit union closing. FDIC’s website says they usually pay the next business day,

by either 1) providing each depositor with a new account at another insured bank in an amount equal to the insured balance of their account at the failed bank, or 2) issuing a check to each depositor for the insured balance of their account at the failed bank.

Should you keep your money in a bank or credit union? Absolutely! Keeping cash in your home puts you at risk of theft, fire, flood, loss, or damage. Opening an account at an FDIC-insured bank or NCUA credit union anywhere ensures that your money is protected in the event of disaster. You do not need to apply for this insurance; coverage is automatic.

One of the issues we have today is that people are too willing to believe what they read on social media. Silicon Valley Bank collapsed because of a post on Twitter. With FDIC and NCUA insurance, in the unlikely event that the financial institution fails, your money is safe.