Is my money safe? Here are the pros and cons of FDIC insurance

Account holders at the failed Silicon Valley Bank and Signature Bank have had a stroke of luck in recent days as federal emergency measures ensured billions in uninsured deposits were protected.

But the same may not apply the next time another bank fails, Treasury Secretary Janet Yellen said this week.

Depositors generally have coverage of up to $250,000 per bank and per account holder category through the Federal Deposit Insurance Corporation, or FDIC.

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However, many of Silicon Valley Bank’s clients, which primarily included venture capital firms, small technology companies, and entrepreneurs, had uninsured deposits at the time of the failure. Data from S&P Global Market Intelligence from 2022 showed that 94% of SVB depositors were above the FDIC limit of $250,000.

Those depositors, as well as those of Signature Bank, were given a reprieve when the banking regulator announced a plan to fully insure all deposits, among other measures designed to help prevent a major financial emergency from being triggered.

“The American people and American businesses can have confidence that their bank deposits will be there when they need them,” said President Joe Biden said on Monday.

Yellen said that going forward, however, uninsured deposits would only be covered if “a failure to protect uninsured depositors would create systemic risk and significant economic and financial consequences.”

For many consumers, this week’s bank failures could bring back memories of the 2008 financial crisis.

While experts say this time is different, there’s no guarantee another bug won’t recur. Certain other institutions have also shown signs of stress this week. First Republic received financial help from other financial institutions to stem their troubles, while Credit Suisse also borrowed billions.

Experts say now is the time to make sure your deposits are protected.

“The majority of Americans will be covered by FDIC insurance because most Americans have less than $250,000 in any given bank account,” said Ted Jenkin, a certified financial planner and CEO and founder of oXYGen Financial, an Atlanta-based financial advisory and wealth management firm. He is a member of CNBC’s Financial Advisor Council.

According to Jude Boudreaux, CFP and senior financial planner at the Planning Center in New Orleans, who is also a member of CNBC’s Financial Advisor Council, the amount of insurance is based on the rightful owner’s name.

For example, a married couple with a business may have insured up to $250,000 in an account in the name of one spouse, up to $250,000 in an account in the other spouse’s name, and up to $250,000 in a business account.

You can also check the FDICs Electronic Deposit Insurance Estimator to see if your funds are insured with your institution and if any portion exceeds the coverage limits.

One way to increase your FDIC coverage is to open accounts with other banks, especially if you have more than $250,000 in deposits, Boudreaux said.

If you want additional coverage, you should also speak to your current bank, Boudreaux suggested. In some cases, they may work with other FDIC-insured entities to protect and insure larger cash deposits.

Small businesses may also want to explore the possibility of seeking additional coverage from multiple banks.

Treasury bills are also a strong option now as short term bills are currently yielding well and are backed by the full confidence and credit of the US government. “They’re as good as it gets from a safety standpoint,” said Boudreaux.