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Protecting Your Money If Your Bank Fails – Part 1

As many readers of this blog know, our office concentrates much of our practice on long term care planning as well as estate planning, including planning for younger families.  I have always found that our older clients seem to be more aware of FDIC insurance that protects their bank accounts than do our younger clients.  Or maybe it’s just that they talk about it or ask questions about it more often.

Having more experience – by virtue of being older – with periods of financial crisis when bank failures are more common, I guess it is only natural that our older clients are more attuned to it.  Yet, during periods of crisis such as the current high inflation rates or the mortgage meltdown back in 2008, it is understandable that the general public focuses more on it.  So let’s jump right in.

When a bank collapses like SVB or Signature Bank, what happens to the money its customers have on deposit there?  Do they lose it?  The short answer is “no” or “probably not” and that in large part has to do with government backed insurance offered by the FDIC.

Not all banks are FDIC insured banks and not all accounts in an FDIC insured bank are covered by the insurance so let’s start with the basics.  First of all, it is easy to tell wether a bank is FDIC insured.  Just ask a bank representative.  You can also look for an FDIC sign prominently displayed somewhere inside the building and/or on the front door.

Also, not all types of accounts are FDIC insured.  Checking and savings accounts, CDs, and money market accounts are covered.  Stocks, bonds, annuities, life insurance and safe deposit boxes offered banks are examples of types of accounts that are not included. There are also limits on the insurance coverage.  Most people are aware of the $250,000 limit, however, it needs a bit of explanation and clarification.  We’ll get to that next week.