(WETM) – The government takeover of Silicon Valley Bank late last week left many across the country wondering what happens when a bank fails and if they can count on getting their money.
The Federal Deposit Insurance Corporation (FDIC) is a government agency that does what its name suggests: it provides insurance for money people deposit into their bank accounts. In a scene that sounds similar to how we learn about the onset of the Great Depression, people who had money in SVB rushed to withdraw it on March 10 (a bank run), causing the tech-locing bank to fail and the FDIC to seize its assets.
At first, it wasn’t clear what would happen to all the money, and if the government didn’t get it under control, there were worries that people would start withdrawing their cash from other banks, as well. However, the US government, including the FDIC, said that people had their money stored at SVB would have access to it on Monday, March 13.
This has prompted questions about FDIC insurance. According to Google, searches for “How much does the FDIC insure?”, “How does FDIC insurance work?”, and “Is FDIC insurance per account?” spiked in the last few days.
What happens if my bank fails?
Let’s say, hypothetically, your FDIC-insured bank fails. You’re worried about your money.
The government agency steps in two ways.
The FDIC will pay out the insured amount to each of the depositors within a few days of the bank closing. It does this by either setting up a new account at a new bank with the total amount of insured money or by sending a check to the depositor.
The agency says the other thing it does is to take on the job of selling and collecting the assets of the failed bank and settling its debts. These mathematic gymnastics include handling claims from depositors for money that is over the insured limit.
How much does the FDIC insure?
This one is, relatively, simple.
The FDIC insures $250,000 for each person per bank. More specifically, the agency explains,” Deposits are insured up to at least $250,000 per depositor, per FDIC-insured bank, per ownership category.”
In other words, if you, a single person, have multiple insured accounts (checking, savings, CD), the FDIC adds up the total amount of money in those and insures up to $250,000.
Is FDIC insurance per account?
“Per ownership category” just refers to who owns the account, NerdWallet explains. To use an example from CNBC, if you run a business with your spouse, the joint business account (with both your names on it), is insured up to $250K, your personal accounts are insured up to $250K, and your spouse’s personal accounts (with only their name on them) are insured up to $250K.
How does FDIC insurance work, and how do I know if I have it?
For depositors, the nice thing is that you don’t have to apply for FDIC insurance. Your bank does.
When signing up for a bank, they’ll usually indicate whether they’re FDIC-insured or not. As long as they are, your money is automatically insured when you open an account. The FDIC also has tools to help you find which banks are and are not insured.
This is a relatively simple explanation of an enormously complex system; it’s important to note that not every type of account is FDIC-insured. The agency also has explanations of what is and isn’t covered.