Is My Money Safe? Understand Your Protection in the Wake of the Silicon Valley Bank Collapse
Businesses and consumers around the world were shaken when Silicon Valley Bank collapsed on March 10, 2023. A few days later, Signature Bank failed as well. It instigated a wave of concern about financial stability, with many wondering how they could ensure their money remained safe.
In the wake of the event, federal regulators stepped in to guarantee customers of Silicon Valley Bank and Signature Bank would not lose any money, with no cap on the amount protected. However, with no guarantee that such extreme measures will be taken in the future, customers of other financial solutions continue to ask questions.
While the news has left many rattled, it is important to note that there are safeguards in place intended to provide protection of funds. This is provided by the FDIC in the United States and the CDIC in Canada.
What Does the FDIC Cover?
For those banking in the United States, the Federal Deposit Insurance Corporation (FDIC) supplies deposit insurance. The organization supplies individual coverage for up to $250,000. That means if your bank fails, and you have under $250,000 in the account – as is the case for the vast majority of bank customers – all your money is protected.
Customers with multiple types of holdings in their bank will need to add up the balances to see if they exceed $250,000. If, for instance, you have $100,000 in a CD bank account and $50,000 in a checking account, both are fully covered.
However, money over $250,000 is not insured, and in the event of a failure, it is possible that money over that amount may be lost. There are two potential solutions available. The first, as recommended by Caleb Silver, editor-in-chief of Investopedia, is to move the remainder of your money to a different financial institution. There are no limits to the number of accounts that customers can open at different institutions and each account will be insured for the full $250,000.
A secondary option is to make your account joint with another individual, such as your spouse. The FDIC protects joint accounts for up to $500,000.
“A married couple can easily protect a million dollars at the same bank by each having an individual account and together having a joint account.” – Greg McBride, Chief Financial Analyst, Bankrate
It is also worth noting that, according to the FDIC, “Investment products that are not deposits, such as mutual funds, annuities, life insurance policies and stocks and bonds, are not covered by FDIC deposit insurance.”
What does the CDIC Cover?
For individuals banking in Canada, insurance is provided by the Canada Deposit Insurance Corporation (CDIC). Like the FDIC, the CDIC protects funds up to a certain amount. However, in the case of the CDIC that amount is $100,000, which will be protected for accounts in each of these seven categories:
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Deposits held in one name: Personal checking, savings, and GICs accounts.
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Deposits held in more than one name: Joint checking, savings accounts, and GICs.
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Deposits held in an RRSP: RRSP savings accounts and GICs.
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Deposits held in a TFSA: TFSA savings accounts and GICs.
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Deposits held in an RRIF: RRIF savings accounts and GICs.
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Deposits held in a trust.
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Deposits held for paying taxes on mortgaged properties
That means if you have $100,000 in a personal checking account and an additional $100,000 in an RRIF savings account, you’ll have $200,000 protected. However, if you have $100,000 in a personal checking account and $100,000 in a personal savings account, you will only have $100,000 protected, as they both fall under the category of “deposits held in one name.”
As is the case with the FDIC, this protection is given per bank account. So, if you have $100,000 in one personal savings account and an additional $100,000 in a personal savings account with another financial institution, all $200,000 are protected.
When it comes to items like stocks, bonds, mutual funds, and cryptocurrencies, the CDIC does not offer insurance, and the consumer takes on the associated risk.
What Happens If My Bank Fails?
As noted in the New York Times, if an FDIC-insured bank closes or fails, insured funds will usually be available within days. Sometimes as soon as the very next business day. Money may be available in a new account immediately if another bank takes over the old one.
Those without enough insurance to cover their funds may receive some or even all of their funds back, but it is a much lengthier process and may even take years to resolve.
The process for the CDIC functions in much the same way, with the only significant difference being the total amount of funds covered.
What Shouldn’t I Do?
When discussing potential actions to protect funds, experts agree that customers should avoid rushing to remove their money from banks.
“Keeping your money in financial institutions rather than in your home is safer, especially when the amount is insured.” – The Associated Press
In addition, a large number of customers withdrawing significant amounts of money can result in further destabilization of a bank. These occurrences, known as bank runs, can lead financial institutions to use up all of their cash reserves, forcing them to default and enter into insolvency.
To learn the steps you can take to protect your money in the event of a bank failure, join our webinar Understanding Bank Failures to Protect Your Assets.
