Until recently, you probably had never heard of Silicon Valley Bank (SVB) unless you lived around Silicon Valley or owned a startup technology company. However, if you have heard of this bank recently, you know that one word summarizes it: failure.
Silicon Valley Bank recently failed, meaning it was unable to meet its obligations to its depositors and was closed by the federal government. You may have seen images of dozens of people on a Friday afternoon, standing outside one of the branch’s doors, unable to get into the bank and withdraw their money. It was a good, old-fashioned “bank run.”
Fortunately, most depositors’ money was federally insured against loss and could be withdrawn the following Monday. But, SVB likely had billions of dollars of uninsured deposits at the time of its collapse.
According to the FDIC, a typical year sees at least a handful of bank failures. Many times, people don’t know their bank failed until it suddenly starts going by a new name.
Your Money’s Not In the Bank
Your money is not physically in the bank. Once your bank receives your deposit, they lend approximately 90% of it to borrowers. By law, your bank must hold on to about 10% of the money you deposit. The bank keeps that money on hand to supply cash to people who close their accounts or make withdrawals.
SVB closed its doors because it didn’t have sufficient cash reserves to pay cash to everyone demanding their money. It was primarily tied up in investments the bank had made in tech companies, which were not insured.
The Federal Deposit Insurance Corporation (FDIC) stepped up and not only made sure everyone whose deposit was insured got their money, but also those who had funds that weren’t insured.
Your Money is Safe
Your money is safe, even if it’s not in the bank. Nearly all banks, like Silicon Valley Bank, have insurance through the Federal Deposit Insurance Corporation (FDIC), which covers $250,000 per depositor per insured bank for each account ownership category. This insurance covers a wide variety of account types, including checking, savings, CDS, and money market accounts. So, if your account at SVB had $250,000 or less in it, you were insured, and your funds were safe.
The bigger issue with SVB was that it had a large number of companies and high-net-worth individuals who had far more than $250,000 in their accounts. However, the U.S. government has said it will fully protect all depositors at SVB and ensure that everyone has full access to all of their funds, including those that exceed the FDIC limit.
How to Protect Your Money
If you have more than $250,000 in deposit accounts with your bank, you can protect the overage by opening up a new account with a different bank. For example, if you have $300,000 with Bank A, you could leave $250,000 there and deposit the $50,000 overage in a new account at Bank B, which would also be insured up to $250,000.
As you can see by what happened at Silicon Valley Bank, the FDIC moves quickly when a bank fails. It recognizes that people are fearful and want and need their money. Insured depositors at SVB had their money by the end of the first full business day after the bank failed.
Hopefully, you’ll rest easier knowing that your bank account is safe, secure, and insured (up to $250,000). There’s no reason to hide any of it in the coffee can or bury it in the backyard. Just be sure you spread your money between banks if you have an account with over $250,000 in it, and let the FDIC worry about cashing you out if the unthinkable happens to your bank.