Silicon Valley Bank collapsed in March 2023 in about 48 hours. Signature Bank followed days later. First Republic went down in May. Three bank failures in two months, and suddenly a lot of people were wondering what would happen to their money if their bank went under.
The short answer: if your deposits are within FDIC limits, you get every dollar back. The longer answer involves understanding how the insurance works, what it covers, and where the gaps are.
FDIC insurance covers $250,000 per depositor per bank
The Federal Deposit Insurance Corporation insures deposits at member banks up to $250,000 per depositor, per insured bank, for each ownership category. If your bank fails and you have $200,000 in a savings account there, you get all $200,000 back. Usually within two business days.
Every legitimate bank in the US is FDIC insured. Credit unions have an equivalent through the NCUA (National Credit Union Administration) with the same $250,000 limit. If your money is at an FDIC or NCUA insured institution, it’s protected.
The $250,000 limit is per ownership category. A single account is one category. A joint account is another. A retirement account (IRA) is another. A married couple can have $250,000 each in individual accounts plus $500,000 in a joint account at the same bank, totaling $1,000,000 in coverage.
What happens during a bank failure
The FDIC typically takes over on a Friday evening after markets close. By Monday morning, the bank usually reopens under new management or the FDIC has arranged for another bank to acquire the deposits. In most cases, customers barely notice the transition. Your account number might change. The name on the building changes. Your money is still there.
Direct deposits and automatic payments usually continue without interruption. Checks drawn on the old bank are honored. Debit cards keep working. The transition is designed to be as seamless as possible.
If no acquirer is found, the FDIC mails insurance checks to depositors within two business days. The money doesn’t vanish. It moves from the failed bank to your mailbox.
What’s not covered
Investments held at a bank are not FDIC insured. If you bought stocks, bonds, mutual funds, or annuities through your bank’s investment arm, those aren’t deposits and aren’t covered. They might be covered by SIPC (Securities Investor Protection Corporation) if they’re in a brokerage account, but SIPC protects against broker failure, not investment losses.
Amounts above $250,000 per ownership category aren’t covered. If you have $400,000 in a single savings account at one bank, $250,000 is insured and $150,000 is not. In the SVB case, the government made an exception and covered all deposits including those above the limit. There’s no guarantee they’ll do that again.
Cryptocurrency held at a bank or through a bank’s platform is generally not FDIC insured, even if the bank is. This is a common point of confusion. The bank’s deposits are insured. The crypto is not.
How to stay within FDIC limits
If you have more than $250,000 in cash, spread it across multiple banks. Each bank provides separate FDIC coverage. $250,000 at Bank A and $250,000 at Bank B gives you $500,000 in total coverage.
Wealthfront and similar cash management services do this automatically. They spread your deposits across a network of partner banks, each providing separate FDIC coverage. Wealthfront currently offers up to $8 million in total insurance through this approach.
Use different ownership categories at the same bank. Individual accounts, joint accounts, and retirement accounts each have separate $250,000 limits. A couple can cover over $1 million at a single bank by using multiple account types.
Should you worry about your bank failing
If your deposits are under $250,000, no. FDIC insurance has paid out on every covered deposit since it was created in 1933. No depositor has ever lost a dollar of insured deposits. The system works.
If your deposits are above $250,000 at a single bank, spread them out. It’s the simplest form of protection available and costs nothing.
Bank failures are rare relative to the number of banks. About 560 banks failed during the 2008 financial crisis, but depositors within FDIC limits were made whole in every case. The system was designed for exactly this purpose and has held up through the worst financial crises in modern history.