If the recent bank failures have you anxious about your money, you’re not alone.
A recent Gallup poll found that nearly half of U.S. adults are concerned about the safety of the money that they have deposited in banks, including about one in five who are “very worried.”
Such concerns are understandable. You count on your bank to protect your hard-earned savings, so learning about bank failures can feel unsettling. That’s especially true when multiple bank collapses occur in the United States within a short period of time, as has happened with the high-profile failures of Signature Bank, Silicon Valley Bank, and First Republic Bank in recent months.
But while it’s normal to be concerned about your personal finances, most consumers don’t need to worry that they’ll lose their money in a bank failure. In most cases, your bank is still the safest place to keep your money. If you have less than $250,000 in an account at an FDIC-insured bank, you’ll get your money back even if that bank fails.
Here are three important reasons why you don’t have to worry about a bank failure:
1. Failed banks are relatively uncommon
When bank failures occur, it typically happens during periods of economic uncertainty. The recent bank failures happened when the bank customers became concerned that their banks would not have enough capital to cover all their deposits due to investment losses from rising interest rates. Some concerned customers withdrew their money from those banks, sparking other customers to become concerned and starting a run on the banks, further depleting their capital.
The news coverage of the recent bank failures can make it feel like banks are failing regularly, but it’s relatively uncommon for banks to fail. The federal government has taken over three banks this year, but it didn’t take over any in 2021 or 2022.
By comparison, during the Financial Crisis, the government took over more than two dozen banks, including Washington Mutual, the largest and most famous bank failure in U.S. history. More than 560 banks have failed since 2000.
2. In most cases, your funds are federally insured
Even if, in a worst-case scenario, your bank falls, you will most likely have all your money returned. Most banks carry Federal Deposit Insurance Corporation (FDIC) insurance. The amount of FDIC insurance is based on the ownership category at each bank. Deposits are insured up to at least $250,000 per depositor, per FDIC-insured bank, per ownership category. You do not have to apply for this insurance coverage—it’s automatic when you open a bank account with an FDIC-insured institution.
Congress created the FDIC during the Great Depression after bank runs created instability throughout the American financial system. When a bank fails, the FDIC takes the bank over, places it into “receivership,” and begins selling its assets to other banks or investors. In the case of First Republic Bank, J.P. Morgan Chase purchased the entire bank.
It also facilitates the release of funds to reimburse depositors for money lost in the failure. The National Credit Union Administration (NCUA) plays a similar role to the FDIC, providing deposit insurance up to the same limits for credit union customers.
In the most recent bank failures, the Treasury went even further, restoring the full balances for all customers—more than $500 billion in total — including those who had kept many times more than the limit at the bank. That said, such a backstop is not guaranteed. Treasury Secretary Janet Yellen has said that the government will only take such actions if not doing so creates the risk of a banking crisis.
Ensuring your accounts have different ownership structures and/or spreading account across multiple institutions to help maximize your FDIC coverage. Also, investing accounts that hold securities are not covered by FDIC insurance.
3. The banking sector is more stable than it was during the financial crisis
Another reason not to worry too much about a bank failure is that the current financial system is more stable than it was during the Great Financial Crisis of 2008. That crisis led bank regulators to implement more security-focused rules to make banks safer and more reliable for their customers. Federal Reserve representatives have said they’re considering additional rule changes.
In addition, the U.S. Treasury focuses on limiting the damage caused by any banks that do experience a failure. That means it may take additional actions (such as backstopping funds beyond the $250,000 limit) to contain any problems with specific institutions.
Valley is here to support you
Since 1927, Valley has been one of the most trusted banks in the industry with a history of solid financial performance. We’re committed to empowering our customers, employees and the communities we serve. Our goal is to help you achieve financial success by communicating with transparency and respect. We focus on relationships rather than transactions and take the time to understand your immediate needs and long-term goals.
If you need assistance or have any questions, don’t hesitate to contact us.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal or accounting advice. You should consult our personal tax, legal and accounting advisors for advice before engaging in any transaction.
