A gentle reminder of reality

[Dave Grubb]

It is "comforting" that banking regulations have evolved to the point that bank failures seem unlikely if not impossible. Ongoing tests and audits are designed to prevent bank failures----apparently almost prevent.

Anyway, clearly the system isn't perfect. As I move money from unprotected investments to safe harbors that thought is in my mind. We do have the protection of the FDIC---but that has limits. For individual accounts that is capped at $250,000 per account. For joint accounts that cap is $500,000.

That said---here is the result of the failure of SVB and Signature Bank:

At 6:15 this evening, Secretary of the Treasury Janet L. Yellen, Federal Reserve Board Chair Jerome H. Powell, and Federal Deposit Insurance Corporation (FDIC) Chairman Martin J. Gruenberg announced that Secretary Yellen has signed off on measures to enable the FDIC to fully protect everyone who had money in Silicon Valley Bank, Santa Clara, California, and Signature Bank, New York. They will have access to all of their money starting Monday, March 13. None of the losses associated with this resolution, the statement said, “will be borne by the taxpayer.”
But, it continued, “Shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.”
The statement ended by assuring Americans that “the U.S. banking system remains resilient and on a solid foundation, in large part due to reforms that were made after the financial crisis that ensured better safeguards for the banking industry. Those reforms combined with today's actions demonstrate our commitment to take the necessary steps to ensure that depositors' savings remain safe.”

CapitalOne Bank is currently paying 3.4% on "passbook" savings and their best CD at the moment is 5% for 11 months. I expect (hope) the CD rate to push a little higher. All are FDIC insured.

Anyone doing better?

[Truckman]

We do have the protection of the FDIC---but that has limits. For individual accounts that is capped at $250,000 per account.

Is it each "account" that is insured, or each "depositor?"...It seems a depositor with multiple accounts could be screwed......Ben

[Dave Grubb]

Good question---I hope my answer is as well!

A joint account can be set up, with both parties listed on the account, and that is covered up to $500,000. In addition, each one of the two listed on the joint account can have an individual account covered up to $250,000. Thus a couple can have up to $1,000,000 covered in a single institution.

Beyond the $250,000 "account" limit for single investors, you need to move to another banking institution.

That said---you have prompted me to delve deeper into the FDIC coverage based on the following:

Like other bank accounts, CDs are federally insured at financial institutions that are members of a federal deposit insurance agency. If a member bank or credit union fails, you're guaranteed to receive your money back, up to $250,000, by the full faith and credit of the U.S. government.

Beyond a joint savings account I have multiple CDs there---and now I am questioning if they are all protected.

If I come up with the answer on that I will let your know.

I think this is this answer:

The FDIC adds together all single accounts owned by the same person at the same bank and insures the total up to $250,000.

[TriGuy]

Treasury I bonds are at 6.95% You can only buy $10,000 per year for yourself and another $10,000 for your spouse. you can however gift as many $10,000 increments (one per person) as you want to other family members

[Independent Voter]

Looking at the last note in your post Dave , it would seam that if you have more than 500G in any one or more funds in one institution , you need to move funds to another bank . Thinking that the accounts are joint .

That would also indicate that if one of the account holders should die , then it would behove the survivor to reduce the amount in the bank to 250G and once again disperse the funds to other institutions .

[Truckman]

Looking at the last note in your post Dave , it would seam that if you have more than 500G in any one or more funds in one institution , you need to move funds to another bank . Thinking that the accounts are joint .

That would also indicate that if one of the account holders should die , then it would behove the survivor to reduce the amount in the bank to 250G and once again disperse the funds to other institutions .

Dick, my interpretation is that the account holder (depositor) as identified by EIN or SS # is the insured...That would indicate to me that it doesn't matter how many different institutions you use to spread the wealth, you are still limited to $250,000 coverage total...But what do I know, I'm just a poor scrap metal collector......Ben

[Dave Grubb]

The I Bonds are not for me. With a maturity of 10 years---and my age, that is way past my horizon. The longest term CD I have is 12 months---the majority are 6 months.

Dick, if you have a joint account with your spouse, that is capped at $500,000 for FDIC. Beyond that you and your wife can have individual accounts in the same institution up to $250,000 ea and insured under FDIC. That is an aggregate amount of $1,000,000.

In a practical sense I would avoid hitting the cap since every month when interest is paid you have to move money out.

[Mike]

Well, I learned something today. Up until now, I thought each account was insured up to $250K. Not so! Each single depositor has the $250K cap with joint deposits capped at $500K. Not that it will ever matter to me. My pension is held by the State of Texas and not something I have any control over.

For a easily understood explanation of what is covered, go to the FDIC's webpage Are My Deposit Accounts Insured by the FDIC?

[Mike]

Here is a pretty good article describing how these banks failed.

[Dave Grubb]

The WSJ has had a number of good articles on this but alas they live behind a paywall

There is another little wrinkle here---I believe. If you have multiple accounts in multiple institutions you carry the cap with you. For example, you and your spouse had a total of $1,000,000 in two banks and both of those banks failed, your insured loss is not $2,000,000 but only $1,000,000.

While that is a real long shot you should be aware of it.

[Truckman]

If you have multiple accounts in multiple institutions you carry the cap with you. For example, you and your spouse had a total of $1,000,000 in two banks and both of those banks failed, your insured loss is not $2,000,000 but only $1,000,000.

That is the point I was trying to convey......Ben

[Mike]

Nope, accounts at different banks are insured separately with each bank (not branches!) insured up to the max allowed per bank. The totals of the banks are not aggregated.

So, you could have $250K deposited in four different banks and if all four banks failed you would be covered for $250K at each bank for a total of $1 million dollars.

The standard deposit insurance amount is
$250,000 per depositor, per insured bank,
for each account ownership category.
The FDIC insures deposits that a person holds in
one insured bank separately from any deposits that
the person owns in another separately chartered
insured bank. For example, if a person has a
certificate of deposit at Bank A and has a certificate
of deposit at Bank B, the amounts would each
be insured separately up to $250,000. Funds
deposited in separate branches of the same insured
bank are not separately insured.

FDIC PDF DOCUMENT

[Dave Grubb]

That is my understanding as well.

[UTAH]

Like Mike, I learned something here today. It really adds up, all of the things our members discuss.

Hunter