Silicon Valley Bank customers are not going to lose any of their deposits. Neither will companies or individuals who have money in Signature Bank.
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This resolution, however, does not make the turmoil of the past few days any less frightening. When shares of banks like First Republic and even brokerage industry stalwarts like Charles Schwab are shaking, it’s natural to want to know what kind of backing is in place to keep you from losing money if your financial institution fails.
Most of the news is good because, in the United States, entities like the Federal Deposit Insurance Corporation (FDIC) and the Securities Investor Protection Corporation offer guarantees of hundreds of thousands of dollars.
Here are some answers to questions you may have about checking accounts and money at investment firms. We will also suggest some measures that you could take, even if this crisis passes. Shorening up defenses—and having some back-up plans—is part of good financial habits.
How much is the deposit insurance of my bank account?
Insurance is typically $250,000 per depositor and bank. The insurance covers several categories of assets, such as checking and savings accounts, prepaid debit cards, and certificates of deposit. (In the cases of Silicon Valley Bank and Signature Bank, regulators chose to indemnify depositors in full—with no limit—although there is no guarantee that they will do so again the next time a bank fails.)
If you have many types of assets, you should add up the balances to see if they exceed $250,000. If, for example, you have $50,000 in certificates of deposit and $25,000 in your savings account, we could say that both amounts are protected.
Insurance costs nothing and you don’t have to check any boxes when you open your account to get it. It’s automatic, as long as you bank with an FDIC-insured entity. The FDIC website has a searchable database of covered institutions.
What if I want more than $250,000 of coverage?
If you open a joint account with someone else—for example, your spouse—they’ll each get $250,000 in coverage, which equates to a potential total of $500,000 in a single joint account.
Another possibility is to open accounts in different entities. You’ll get the same FDIC coverage at each, with no limits on the number of institutions you have accounts (and insurance) with.
How does FDIC insurance work if my bank fails?
If your insurance covers your balances, you’ll usually have access to that money in a matter of days, often the next business day. Sometimes, if the bank where you had your funds is acquired by a new financial institution, your money will end up in the new bank immediately. For now, so-called bridge banks operate the former Silicon Valley Bank and Signature Bank.
If you don’t have enough insurance to cover your balances, you may still be able to recover some or most of that uncovered amount. But the FDIC could take years to figure it out when it’s shutting down a failing bank and selling off its assets.
What would happen to my direct deposit payroll or Social Security payment if my bank went bankrupt?
According to the FDIC, if the failing bank is immediately acquired by another financial institution, the deposits should go into your new account without incident. Bridge banks should have the same capacities.
How can I access my safe deposit box if my bank goes bankrupt?
Access to safe deposit boxes should be possible the next business day after a bank failure, says the FDIC on its FAQ webpage on bank failures.
How much share insurance does my credit union have?
The National Credit Union Administration administers an insurance fund similar to the FDIC’s and has its own limit of $250,000. You can get more information on the mycreditunion.gov website.
How are my brokerage and investment accounts protected?
If a brokerage firm is in financial trouble, an entity called the Securities Investor Protection Corporation (SIPC) acts as a backup. It is a non-profit corporation created under the Securities Investor Protection Act of 1970.
Generally, SIPC covers up to $500,000 in securities and cash (including a $250,000 limit for the cash component) for each customer, although this amount may be higher for multiple account holders, depending on account type and whether they are individual or joint accounts.
A traditional individual retirement account, a Roth IRA and an individual brokerage account, for example, would each have a $500,000 limit at the same company. The same goes for a separate joint account or trust account.
But if you had two individual brokerage accounts at the same company, for example, you would only receive up to $500,000 of protection for both. A married couple with a joint brokerage account—as well as two individual brokerage accounts at the same company—would receive an additional $500,000 in coverage for the joint account.
Do all brokerage clients have protection?
SIPC says on its website that it’s important to understand that its coverage “is not the world’s equivalent of Federal Deposit Insurance Corporation securities.” Its goal is to “restore cash and securities of clients left in the hands of bankrupt or financially troubled brokerage firms.”
Protection is only available if the brokerage firm fails and is a member of SIPC; most brokerage firms are required to join. You can check if your brokerage firm is one of its 3,500 members on the SIPC website or by contacting the firm.
Following the bankruptcy of a brokerage firm, SIPC tries to quickly transfer accounts to a healthy firm so that clients can have immediate access to their investments. If account transfers are not possible, or money is still short, customers can file claims with SIPC for the amount owed to them, said Josephine Wang, SIPC president.
What types of investments are covered?
In addition to cash, covered investments include stocks, bonds, mutual funds, and other company stocks and registered securities.
The SIPC does not cover unregistered investment contracts, unregistered limited partnerships, fixed annuity contracts, foreign exchange, and interest on gold, silver, or other commodity futures or commodity options contracts.
Why were investors worried about Schwab?
Shares of Charles Schwab, the retail brokerage giant, tumbled on fears it could also be hit by the crisis. The shares fell as much as 23 percent on Monday, before closing down more than 11 percent. Investors may have been worried about its big banking business, which, like Silicon Valley Bank, owns a sizable amount of fixed-income investments that have lost value due to rising interest rates.
But Schwab has healthy reserves, and analysts aren’t worried about its financial position. And, as the company’s top executives recently noted, more than 80 percent of its customers’ cash is dollar-for-dollar insured by the FDIC.
Should I have reserve credit cards?
There’s no indication that any of the major credit card issuers are in trouble, but it’s always a good idea to have two cards—from different companies—if you qualify for those lines of credit.
For example, you could lose your primary card. Or your card issuer might cancel your card if they’re concerned about fraud (for example, when you’re traveling).
Could you lose access to ATM withdrawals?
If a bank fails, there may be technical problems if a new entity inherits the insured accounts. That could cause an ATM card to not work for a few days.
Another possibility is a widespread power outage that lasts for days and makes it difficult to get cash (and use credit or debit cards in stores). In the run-up to inclement weather, bank customers may empty ATMs. And afterwards, it can be difficult for the money trucks to get to the ATMs to recharge them.
Because of these possibilities, it’s a good idea to save a few hundred dollars if you can afford to put that money away. But remember where you put it. It’s easy to forget and, years later, give away the clothes or books with everything and the money you hid.
Ron Lieber has been a columnist for Your Money since 2008 and has written five books, the most recent being The Price You Pay for College. @ronlieber • Facebook
Tara Siegel Bernard writes about personal finance for The New York Times. Before joining The Times in 2008, she was a deputy editor at FiLife, a personal finance website, and an editor at CNBC. She also worked at Dow Jones and was a regular contributor to The Wall Street Journal. @tarasbernard
Source: NYT Español