March 26, 2020
FDIC and SIPC Insurance: Is My Money Safe?
During periods of uncertainty, federally-insured banks remain the safest and best place to keep your money because of FDIC and SIPC insurance.
Periods of great uncertainty often leave many people questioning the safety of our banking system. We rely on the ability to access the money in our bank accounts to pay our bills, purchase goods and services, and more. Although our banking system is heavily regulated and backed by guarantees, having our money out of sight and out of reach can be a source of concern for some.
Banks During The Outbreak
Amidst the current situation, banks are no different than any other business. They are concerned about the protection of their employees. As you might have noticed from your notifications, banks are limiting lobby hours, temporarily closing branches, or providing drive-through service only.
This is not an indication of the safety of the banking system, but rather an attempt to limit the spread of the virus and make sure that employees are protected. If you have not registered for your bank’s online or digital account access, now would be a good time to do so to make sure you can easily and safely access and view your funds when needed.
Oftentimes when we see financial uncertainty, some will feel tempted to have more cash in hand. Banks are certainly able to meet these demands if necessary through their required reserves and the backing of the Federal Reserve Bank, which is where banks go when they need money. Although banks can do this, we should be cautious to prevent the virus from impacting the payment systems or the ability to access funds digitally.
Keeping your cash outside of a bank can also bring about risk and inconvenience. Many companies have moved away from cash as a form of payment which makes paying your bills more difficult than using electronic payment methods. That, combined with the risk of theft or disasters, still makes FDIC insured banks the safest place for your money.
In addition to banks being heavily-regulated and required to protect customer deposits, there is also another safety net for your funds: FDIC Insurance. The Federal Deposit Insurance Corporation (FDIC) was created to insure customers from loss in the event a bank experiences a collapse. This insurance protects depositors up to $250,000 per depositor for each financial institution. It covers checking, savings, and certificates of deposit. While most banks in this country are FDIC insured, it never hurts to make sure. Ask your bank if they participate in the program to make sure your deposits are insured.
Since 1933, no FDIC-insured depositor has ever lost money due to insolvency or fraud of a member bank. If you have more than $250,000 on deposit with one bank, it is a good idea to spread the money to another FDIC bank so that the full amount of your deposits are protected. For more information about FDIC insurance, you can visit the FDIC online.
If you use a credit union as a bank, the good news is that you are federally insured on your deposits as well. The organization that protects members of credit unions and their deposits is the National Credit Union Administration (NCUA). In large part, the protections provided by the NCUA are fundamentally the same as the FDIC. To learn more about the NCUA visit them online.
Finally, you may be wondering if or how your investment accounts are protected. The Securities Investor Protection Corporation (SIPC) provides protection from a failed SIPC-member firm which includes most broker-dealers and custodians. This could happen because of fraud or financial mismanagement. SIPC protects the customer’s assets held at a financially-troubled brokerage firm. Assets can include stocks, bonds, mutual funds, and other securities.
However, SIPC does not protect account holders from the loss due to market conditions or poor investment advice. Unlike FIDC, SIPC protections have a limit of $500,000 per customer and cover a variety of accounts and securities. More detailed information on SIPC can be found on sipc.org.
As economic uncertainty continues to grow, it’s understandable to be concerned about our banking system. However, the good news is that federally-insured banks continue to be the best place to keep your money. There are several safeguards in place to make sure your assets are protected and that the banking system remains strong and resilient. With the unpredictability of current events at the moment, we can have peace of mind knowing that our banks are protected.