Experts say government regulators took the extraordinary step of making whole uninsured depositors at two failed banks over the weekend, but savers should not count on similar treatment if other banks fail in the future.
Shut down by regulators on Friday, the Silicon Valley bank represents the largest US bank to fail since Washington Mutual in 2008. This was followed by Signature Bank over the weekend.
Experts say that thanks to reforms implemented after the 2007-09 recession, the US banking system is structurally stronger than it was 15 years ago. The risk of a collapse for Silicon Valley and Signature stems more from fear of contagion than any systemic weakness.
Still, the threat of infection was so great that by Sunday evening, Banking regulators announced That the government would make depositors of Silicon Valley Bank and Signature Bank whole, even those whose deposits exceed the $250,000 limit for Federal Deposit Insurance Corporation (FDIC) insurance.
President Joe Biden on Monday sought to reassure savers that their bank deposits are safe. “The American people and American businesses can be confident that their bank deposits will be there when they need them,” he said in a brief address.
The US Treasury Department, the Federal Reserve and the FDIC said in a joint statement that any losses to the Deposit Insurance Fund meant to support uninsured depositors would be recovered by a special assessment on banks, as required by law. .
Still, it’s important for savers to pay attention to future FDIC insurance limits, experts said. “Keep your exposure to bank products to less than $250,000 per tax ID per institution,” said Richard Saperstein, chief investment officer at Treasury Partners, a New York City-based investment firm with $9 billion in assets under management:
How does FDIC insurance work?
The FDIC is an independent agency of the US government that protects bank depositors against the loss of their insured deposits in the event of a bank failure. Insurance is funded by member banks – customers pay nothing for up to $250,000 in structure coverage per ownership per institution.
What does it mean? You receive up to $250,000 in coverage for any deposit you place at the bank across various product categories, including savings accounts, checking accounts and CDs. If you hold one of these products in a joint account with a spouse, that’s an additional $250,000 of protection for joint holdings.
Experts say it’s a good practice to keep your cash within those limits. “We diversify not only our stock portfolios, but also where we keep our cash,” said Chelsea Ransom-Cooper, a certified financial planner and director of financial planning at Zenith Wealth Partners in Jersey City, NJ One ” She said customers may be sitting on a large amount of cash when they have set aside money for the down payment on the home.
To be sure, spreading your money across multiple institutions can be of great use, especially for high-net-worth individuals. Stonecastle Cash Management is a New York-based firm that divestes itself among its 900-some partner banks. It offers individuals up to $25 million in FDIC-protection per tax ID at a current yield of 4.16%. The service is delivered exclusively through advisors on behalf of individual clients, who receive a 1099 form at tax time that consolidates their multiple accounts across banks.
Max is a firm that provides cash management services directly to individuals. It also provides FDIC insurance coverage of up to $2 million per individual or $8 million per couple, depending on the number of online banks currently supported on the company’s platform.
Ransom-Cooper said to note that money market mutual funds—funds that invest in short-term government debt, which are considered cash equivalents—are covered by a different type of insurance. SIPC protects Against loss of cash and securities at SIPC-protected brokerage firms. (Note, the SIPC does not protect against market losses, only against money that vanishes through means such as malfeasance.)
An example of a brokerage firm that offers additional private insurance SIPC insurance is lapsed in the event, Ransom-Cooper said.
Write to Elizabeth O’Brien at [email protected]