Silicon Valley Bank (SVB) collapsed last week. This is not going to be a newsletter about how or why that happened, but instead, why it impacts you. Yes, it impacts you even if you never heard of SVB before just now.
You need to know about the FDIC
The one thing I want you to understand about this whole SVB collapse is what it means to be FDIC insured. The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the federal government that insures trillions of dollars. It was established in 1933 after so many bank failures occurred during the Great Depression.
What you need to know is that the FDIC insures up to $250,000 per depositor at a bank.
Well, mores specifically: “The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category.” There is some nuance about if you have multiple accounts across different ownership categories (e.g. single, joint, trust, corporate) then you have $250,000 worth of coverage per account. But, if you have three single-owned checking accounts, then isn’t $250,000 per account. It’s $250,000 total.
It’s critical to understand that FDIC insurance does not apply to investments. Here’s exactly what the FDIC has to say:
“The FDIC insures deposits only. It does not insure securities, mutual funds, or similar types of investments that banks and thrift institutions may offer.”
You might have a checking account and a brokerage account at the same financial institution, but if that institution collapses, the FDIC insurance is only covering your checking account. The SIPC might insure your brokerage account, but that’s a conversation for another day!
How to check if your bank is FDIC insured
Don’t panic too much because most banks are FDIC insured. Go to your bank’s homepage and scroll to the bottom. Now look for “Member FDIC” or just CTL-F for the term FDIC. Another option is to check the FDIC’s BankFind tool.
Back to SVB
Back to SVB, the FDIC took it over last week and is working to get depositors reimbursed. You can read more here.
What if you’re rich?!
If you are ever in the fortunate position to have more than $250,000 in cash at a bank, then you should spread the love around. Ensure that you either have a few different qualifying accounts so each one receives FDIC insurance coverage or you should have accounts at a few different banks so funds in excess of $250,000 are protected.
