Let Me Clarify

During periods of turbulence in the economy, media outlets dominate most investors news feeds with doomsday-style headlines aimed at attracting attention and clicks. For the individual investor, at least those we encounter on a regular basis, this usually causes a lot of unease, and we field a lot of questions about whether this crisis is the one that will ultimately dismantle their financial goals and ruin their financial plan.

Over the past few weeks, the headlines have been centered around regional, mid-sized banks. Recently, the Silicon Valley Bank imploded overnight (unlike historic runs on the bank, this one was ironically achieved by so called “sophisticated investors” with smart phones). And if you’ve followed this story to any degree, you’ve likely come across a lot of references to protection provided by the Federal Deposit Insurance Corporation, or FDIC. In the past week alone, searches for details of FDIC insurance on Google have increased more than 10-fold above the highest point from the prior year as investors seek to refamiliarize themselves with the limits and make sure their money is safe.

Let’s begin this discussion with some basic facts about the program:

1. FDIC insurance is backed by the United States Government. The official wording is “Full faith and credit”, which many argue means that the government can use any means necessary (think taxes, budget addendums or laws) to support the program, if that type of extreme measure was needed.
2. In the event of a bank failure, FDIC insurance is designed to protect the individual depositor and their deposits held at the bank, not necessarily the bank itself.
3. In general, nearly all banks in the United States are covered by FDIC, but one important exception to this is deposits held at credit unions, which are protected by a different system (NCUSIF).

Additionally, there are a few points that are less well known and can cause confusion:

1. The FDIC protects the first $250,000 of a deposit per owner, per FDIC bank, per ownership category. There are currently 14 different ownership categories recognized by the FDIC. Commonly encountered ownership category examples include Single, Joint and Trust accounts. For instance, at a single bank, an individual could have and be fully protected by the FDIC:
   • $250,000 at a single bank in a checking account (single).
   • $250,000 share of a jointly held savings account with another individual.
   • $250,000 in a Revocable Trust account, with the trust listed as the owner.
   However, if any of those values exceed $250k, they would fall outside FDIC protection. By opening the same accounts at a separate bank, the coverage would start over at the new bank, as long as that bank had FDIC insurance.
2. Not all banks are FDIC insured. Although uncommon, some banks choose not to participate in the FDIC insurance program. If you are unsure, a quick search of your bank’s website or a phone call to a local branch can quickly answer this question for you.
3. FDIC insurance does not cover certain types of holdings, even at an FDIC insured bank. The FDIC specifically mentions coverage of checking and savings accounts, money market deposit accounts, and certificates of deposit (CDs), among others. A few important exceptions to the coverage are life insurance policies, annuities, stocks, and bonds (though some of these might be covered through a separate program, SIPC, but that’s a topic for a different blog).
4. In the event your bank was to fail, and FDIC coverage were needed, be mindful that deposits might be difficult or unavailable for a period of time while things get sorted out. Holding accounts at more than one institution isn’t a bad idea, and essential if your coverage needs exceed the FDIC limits.

My general recommendation is to use this time as a chance to refamiliarize yourself with the limits and make sure and reach out if you have further concerns or questions. For a more comprehensive list than I’ve been able to provide in this short article, or for additional details of the above, please visit FDIC.gov.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendation for any individual.