How to insure your money and protect your US bank deposits

The clients of the Bank of Silicon Valley they will not lose any of their deposits. Businesses or individuals who have money at Signature Bank will not do so either.

This resolution, however, does not make the turmoil of the past few days any less frightening. When the actions of banks like First Republic and even from brokerage industry stalwarts like Charles Schwab, it’s only natural to want find out what kind of support exists to prevent 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 guarantee of hundreds of thousands of dollars.

Here are some answers to questions you might have about checking accounts and money in investment businesses. We will also suggest some measures that you could take, even if this crisis passes. Building up your defenses – and having backup plans – is part of good financial habits.

Insurance is usually $250,000 per depositor and bank. The insurance covers several asset classes, such as checking and savings accounts, prepaid debit cards and certificates of deposit. (In the cases of Silicon Valley Bank and Signature Bank, regulators opted to fully compensate depositors – with no limit – although there is no guarantee they will do so again the next time a bank will go bankrupt.)

If you have multiple types of assets, you must add 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, you could say that both amounts are protected.

The insurance costs nothing and you don’t have to check a box when opening your account to obtain it. It’s automatic, as long as you’re dealing with an FDIC-insured entity.. The FDIC website has a searchable database of covered institutions.

if you open one joint account with another person For example, your spouse, you will each have coverage of $250,000, which equates to a potential total of $500,000 in one joint account.

Another possibility is to open accounts in different entities. You’ll get the same FDIC coverage at everyone, with no limit on the number of institutions you have accounts (and insurance) with.

If your insurance covers your balances, you’ll usually have access to that money within 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 immediately end up in the new bank. For now, the 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 it could take years to figure out while liquidating a bankrupt bank and selling its assets.

According to the FDIC, if the failing bank is immediately acquired by another financial institution, the deposits should go to your new account without incident. Bridge banks should have the same capabilities.

Access to safes must be possible next working day bank failure, says the FDIC on its Frequently Asked Questions About Bank Failures webpage.

The National Credit Union Administration administers an insurance fund similar to that of the FDIC and has its own limit of $250,000. You can get more information on the mycreditunion.gov website.

If a brokerage firm is in financial difficulty, an entity called Securities Investor Protection Corporation (SIPC) serves as a backup. It is a not-for-profit corporation created under the Securities Investor Protection Act of 1970.

Generally, the SIPC covers up to $500,000 in securities and cash (including a $250,000 limit for the cash component) per client, although this amount may be higher for individuals with multiple accounts, depending on the type of account and whether they are single or joint accounts .

A traditional Individual Retirement Account, Roth IRA, and Individual Brokerage Account, for example, would each have a $500,000 limit at the same company. The same is true for a joint account or a separate trust account.

But if you had two individual brokerage accounts at the same company, for example, you would only receive up to $500,000 in protection for both. A married couple with a joint brokerage account, as well as two individual brokerage accounts at the same company, would receive additional coverage of $500,000 for the joint account.

SIPC says on its website that it’s important to understand that its coverage “is not the worldwide equivalent of Federal Deposit Insurance Corporation securities.” Its goal is to “return client cash and securities left in the hands of bankrupt or financially distressed brokerage firms.”

Protection is only available if the brokerage firm goes bankrupt 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 company, SIPC attempts to quickly transfer accounts to a healthy company so that clients can have immediate access to their investments. If account transfers are not possible, or the money is still missing, customers can file claims with SIPC for the amount owed to them, said Josephine Wang, president of SIPC.

In addition to the speciesinvestments covered include stocks, bonds, mutual funds and other corporate shares and registered securities.

SIPC does not cover unregistered investment contracts, unregistered limited partnerships, fixed annuity contracts, foreign exchange transactions, and interest on gold, silver, or other commodity futures. commodities or commodity options.

Shares of Charles Schwab, the retail brokerage giant, fell on fears it could also be hit by the crisis. Shares fell 23% on Monday, before closing more than 11%. Investors may have been worried about his big banking firm which, like Silicon Valley Bank, holds a significant amount of fixed-income investments that have lost value due to rising interest rates.

But Schwab has healthy reserves and analysts are not worried about its financial situation. And, as the company’s top executives recently pointed out, more than 80% of its customers’ cash is insured dollar-for-dollar by the FDIC.

There’s no indication that any of the major credit card issuers are in trouble, but it is always advisable to have two cards —from different companies— if the conditions for applying for these lines of credit are met.

For example, you could lose your main card. Or your card issuer may cancel your card if they suspect fraud (for example, when you travel).

If a bank fails, there may be technical issues if a new entity inherits the insured accounts. This could prevent an ATM card from working 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). As bad weather approaches, bank customers may empty ATMs. And afterwards, it can be difficult for the money trucks to get to ATMs to top them up.

Because of these possibilities, it’s a good idea to save a few hundred dollars if you can afford to put that money aside. 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.

© The New York Times 2023