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To say that banks have been in the news lately is an understatement. But it’s not just news about banks in general – it’s news about banks closing and sending their customers into a worried frenzy.
One of the biggest news items over the last few months was the sudden closure of Silicon Valley Bank, which went from seemingly solvent to shuttered within the span of a weekend. Only a few days later, Signature Bank in New York closed its doors. Other large banks known all over the world, such as Credit Suisse, found themselves in serious trouble.
And it seemed to happen overnight.
Seniors might find all of this quite worrisome. After all, many seniors live off of retirement funds they worked hard to set up and contribute to throughout their working years. Many are careful with their cash and make affordable purchases to protect their savings. For instance, they might choose to downsize to a smaller home, drive an older vehicle that is already paid off, or take local vacations instead of lavish ones.
Many seniors make affordable choices to protect their health, too. Obtaining medical alert technology or carefully-chosen aging in place home modifications shows that seniors are looking to the future and being careful with their money. So the idea of entrusting your money to a bank that then mishandles funds can be quite disconcerting.
If you’re wondering just how safe your money really is, you’re not alone. Many seniors are worried about their retirement funds, especially if those funds are invested in the stock market. It’s important to know what money is insured, what is not, and what you can do to protect what you have. Let’s look at the basics of the banking system and how these details pertain to your financial well-being.
How Common Are Bank Failures?
Seeing news of a bank failure can be scary. But it’s important to remember that while bank failures make big news, they are rather uncommon. Since 2000 there have been 565 bank failures, most of which happened during the 2008 financial crisis. Most of those banks were small ones, though there were some larger banks in the mix too.1
In recent years, bank failures are exceedingly rare; there were no failures in 2021 or 2022, and two failures in 2023. To put that in perspective, there were 4,844 insured commercial banks in the United States at the end of 2021 – so the failures equal only 0.04% of banks in the United States.2
But even though that number is very small, it certainly doesn’t feel small when it’s your money that is threatened! The good news is that there are many ways to protect your hard-earned savings.
What is the FDIC?
If you’ve read the articles about recent bank failures, you’ve probably read about the FDIC. The Federal Deposit Insurance Corporation is a government agency that works to oversee the banking industry. It was created in 1933 after the “run on banks” that occurred after the stock market crash of 1929. The goal was to create an organization that would protect the people who deposited their money into banks and foster more trust in the banking system.
Today, the FDIC supervises banks and makes sure they are operating well. The FDIC also makes sure that banks comply with all regulations, such as the Truth in Lending Act or the Fair Debt Collection Practices Act. In other words, the FDIC is about making sure that consumers can trust their banks.
Though the FDIC does a lot of things, their biggest and arguably most important task is to insure deposits at banks across the United States.
What is FDIC Insurance?
FDIC insurance covers $250,000 of the money in your account if your bank fails. That means if you have $250,000 or less in a savings account, your money is safe. It also covers interest, so if you have principal of $230,000 and interest of $20,000, you’ll get your full $250,000 back if the bank fails. However, if you have more than $250,000 in the bank, you might lose anything over that amount in a bank failure.
The FDIC protects your money in two ways: in the event of a bank failure, the FDIC looks for another bank that can take on the accounts from the defaulting bank. If they find one, the customer’s account just transfers over to that bank and they don’t lose any money. But if the FDIC can’t find a bank to take over the accounts, they will write a check to the account holder for the money they lost, up to the insured limit.
There is no charge for this insurance. The bank pays the fee; you don’t.
What Accounts are Covered?
How do you know for sure if your bank has this coverage? Most banks are very clear that they are “member FDIC” in their advertisements and on their websites. But you should also contact the bank directly to ask if your particular type of account is covered by FDIC insurance.
The FDIC typically covers funds in the following types of accounts:
· Checking
· Savings
· Money market deposit accounts
· Certificate of deposit (CD)
· Official items issued by the bank, including money orders and cashier’s checks
· Revocable or irrevocable trusts held by the bank
· Any retirement account in which you have a right to know how it is invested, such as Individual Retirement Accounts (IRA) or 401K and profit-sharing plans.
Investment accounts, including mutual funds, annuities, stocks, bonds, and securities issued by the government, municipalities, and U.S. Treasury are not covered by FDIC insurance.
You might notice that there is a money market deposit account on the list of things the FDIC covers. Many people confuse “money market accounts” with “money market funds” or even “mutual funds.” The difference is that money market accounts are deposit accounts, where you put money into them and the bank holds them for you. In exchange, you get a percentage of the interest. But a money market fund or a mutual fund is an account that works on the ups and downs of the stock market. These are not considered deposit accounts and thus aren’t covered under the FDIC.
And yes, this might be rather confusing!
To make matters even muddier, sometimes the FDIC covers much more than $250,000 per account. In the case of Silicon Valley Bank, many individuals held accounts at the bank that were worth millions of dollars. According to Forbes, 97% of the bank’s deposits were over the $250,000 threshold at the time of the bank collapse. The FDIC pledged to make every depositor whole and did so by making sure each consumer could access their money within a matter of days of the bank closing.3
To be absolutely certain that your money is safe, contact your bank directly and ask about their FDIC insurance. Go through every account with a bank representative and get their assurance that your money is fully covered. And if you have any funds at risk, work with your banker to figure out how to create new accounts to transfer money into to ensure all of your funds have FDIC coverage.
To learn more, visit the official FDIC website.
If You’re Using a Credit Union
Credit unions aren’t covered by the FDIC, but that’s okay! Credit unions are covered by the National Credit Union Administration. The NCUA regulates credit unions in much the same way that the FDIC regulates banks. The NCUA insures individual accounts for the same $250,000 as the FDIC does, with the same rules. This official credit union website provides in-depth information on what is covered and what is not.4
What About Your 401K?
Keep in mind that your 401K might not be held by a bank at all. It might be held by an investment firm instead, such as Fidelity Investments, Principal Financial, or Charles Schwab, just to name a few of the high-profile firms.
How a 401K works can be confusing, because it often depends upon the particular employer and how they structured their savings plan for employees. If your 401K holds capital market investments, such as mutual funds, stocks, or bonds, there is no FDIC insurance for these accounts. However, there is coverage through the Employment Retirement Security Act (ERISA). This requires the sponsors of 401K and other retirement plans to act in the best interest of the employees and provides specific protection for retirement plans.
If the custodian – the company that runs the 401K – were to fail, the Securities Investor Protection Corporation (SIPC) steps in. That covers up to $500,000 per consumer for securities and cash that are in the hands of a brokerage firm at the time of failure.
Protecting Your Money While Protecting Your Health
Once you know your money is protected, you can breathe a big sigh of relief.
But remember that life changes can happen in the blink of an eye, and what looked like a healthy retirement today might not look like enough money tomorrow. That’s especially true if you wind up with a severe injury as the result of a fall. According to the CDC, one in five seniors who falls will suffer a severe fracture or a traumatic brain injury.5 And both of those conditions will require extensive care and recovery time.
A medical alert device with fall detection can provide you with the peace of mind that if you do suffer an accident, you can get help right away. Many severe injuries can be made much worse by lying on the floor after a fall while you wait for help to arrive. That’s why a medical alarm is considered a true life-saving alert system – it allows you to simply press a button and get help headed your way fast.
Quick action in the midst of an accident or other emergency can mean better outcomes. It can mean less time in the hospital, fewer days of rehabilitation therapy, and a speedier return to the hobbies you enjoy. And that can all mean more money kept in your accounts. An affordable medical alert system protects not only yourself, but your hard-earned dollars as well.