Are your bank deposits safe? Potential problems could be brewing

 

Standard FDIC insurance of $250,000 per depositor per bank is sufficient to cover potential losses for most customers. (Photo: AFP/Getty Images)

FDIC deposit insurance, a key buffer that gives confidence to consumers in good times and bad, is in much better shape than it had been.

This fund now holds a record $107 billion, enough to cover 1.4% of insured deposits. The ratio fell below 0% in 2009 and 2010, when nearly 300 banks failed. When the fund is too low, the FDIC calls on healthy banks to ante up more money through higher insurance premiums. Insurance is a federal guarantee, so the FDIC can borrow from the government in a pinch.

As for failures, just one bank has gone under since the end of 2017. Nearly all of the nation’s banks are insured by the FDIC, as are nearly all credit unions, which are covered by a separate but similar agency, the National Credit Union Administration.

You can insure more than $250,000

The FDIC’s basic coverage amount is up to $250,000 per person per bank, but you could hold more than $250,000 at a particular bank and still be covered, such as if you also have a joint account or certain types of retirement accounts.

In short, your coverage could exceed $250,000, depending on how your accounts are owned. The FDIC provides specific examples of titling nuances under the “deposit insurance” section on its website, fdic.gov, or here.

If you’re fortunate enough to have deposits that exceed $250,000 but are concerned about coverage, you can extend it by spreading your money among different banks. The $250,000 limit also applies at credit unions.

Not all bank investments are insured

For consumers, one key lesson involves understanding the investments on which deposit coverage applies compared to those where it doesn’t.

The FDIC’s insurance fund covers deposits including checking and savings accounts, certificates of deposits and money-market accounts. What it doesn’t cover are stocks, bonds, annuities, mutual funds and other investments, even if they were purchased in a bank.

Money-market mutual funds aren’t deposits and thus don’t receive FDIC backing, though they have a track record of high safety.

Depositors rarely lose money

Even during periods of rising bank failures, such as the slump from 2009 through 2011 — a three-year period when 390 banks went under and the deposit fund was temporarily depleted — most depositors weren’t in danger of losing money. Still, this guarantee applies only to insured deposits. People holding more than $250,000 could lose a portion of their balances. Roughly $5 trillion of deposits currently aren’t insured.

The FDIC looks for strong banks to take over troubled institutions. When a white knight emerges, it typically assumes most if not all outstanding deposits, including those above the $250,000 limit. That helps to protect people with more cash on deposit and make losses rare.

Bank safety right now shouldn’t be a concern for anyone. But low yields might linger for quite a while longer, and they remain a bigger challenge for depositors.

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