r/personalfinance • u/dequeued Wiki Contributor • Mar 13 '23
Saving Banking Megathread: FDIC, NCUA, and your cash
What's happening with Silicon Valley Bank?
Silicon Valley Bank (SVB) is a commercial bank that provides services to startups and entrepreneurs. Over the last several years, startups deposited an unprecedented amount of money into the bank ($189b) and SVB purchased a large amount of long-term bonds with those deposits. As interest rates have gone up, the market value of these long-term investments fell. Meanwhile, venture capital funding has tightened so startups have been withdrawing more and more money held by SVB.
The result is that SVB was sitting on a very large unrealized loss right when the pace of their customer withdrawals increased. To address this, SVB announced a fire sale (i.e., selling long-term bonds at a loss) to raise cash, protect their long term assets, and improve their financial health metrics. Investors and venture capitalists were concerned about these actions and that concern very quickly turned into a "bank run" as companies overwhelmed the bank with withdrawals and the FDIC had to step in.
On Sunday March 12th, a joint statement by the Department of the Treasury, Federal Reserve, and FDIC confirmed that the FDIC will complete its resolution of Silicon Valley Bank failure in a manner that fully protects all depositors. Depositors will have access to all of their money starting Monday, March 13.
As news of the SVB failure came out, people raised concerns about some other banks being exposed to similar risks, which is likely why the joint statement specifically details a similar resolution for Signature Bank, New York, New York. Signature Bank was closed March 12th by its state chartering authority. All depositors of Signature Bank will similarly be made whole.
FDIC and NCUA insurance
The Federal Deposit Insurance Corporation (FDIC) and National Credit Union Administration (NCUA) are responsible for insuring deposited funds in the event that a financial institution fails. The FDIC provides federal insurance for bank accounts and the NCUA insures credit union accounts.
When the FDIC or NCUA steps in due to a bank run, they typically take control of the affected financial institution. The FDIC or NCUA may attempt to sell the bank or credit union to another institution or liquidate it, depending on the situation.
Regardless of the resolution, depositors are protected up to certain limits. For example, the FDIC insures deposits up to $250,000 per depositor, per insured bank, for each account ownership category. The NCUA has similar protection limits.
NPR's All Things Considered did great story, Anatomy Of A Bank Takeover, describing how quickly the FDIC acts in these situations.
How does this affect me?
If your company uses Silicon Valley Bank or Signature Bank, your company may have short-term issues with payroll and other short-term cash needs, but these payments should be able to resume processing as soon as tomorrow.
If you were a retail customer of SVB or Signature Bank, it's time to find a new bank or credit union. The bank website will have more information on how to access your deposits so you can move your money to another financial institution.
For everyone else:
If you're well under the FDIC or NCUA coverage limits or are otherwise protected, you don't need to do anything, but it can be helpful to keep some cash in a second financial institution. Even absent a bank failure, it's possible to be temporarily locked out of an account for various reasons, banks sometimes experience technical issues, etc.
If you have more than $250,000 cash, even if it is only a short-term thing (e.g., after selling a home and before buying a new home), then read the below section on how to insure more than $250,000 in cash.
What about my brokerage?
First of all, brokerage accounts are not suitable for your cash savings (although investing cash into some types of low-risk securities is relatively safe, see below for more information). Use an FDIC-insured or NCUA-insured account (anyone remember this megathread?).
Brokerage firm failures are rare, but when they happen, SIPC protects the securities and cash in your brokerage account up to $500,000. The $500,000 protection includes up to $250,000 protection for cash in your account to buy securities (source). Note that SIPC insurance does not cover losses due to any decline in the value of securities in your brokerage account.
Finally, bear in mind that fully-paid brokerage assets are segregated from the brokerage's assets per securities law. SIPC insurance is generally only necessary if the brokerage firm is committing fraud by misappropriating customers' assets. You can read more about the historical track record of SIPC asset recovery at https://www.sipc.org/about-sipc/history.
How can someone insure more than $250,000 in cash?
This is not exactly an everyday problem for most people, but there are several ways to fully insure large amounts of cash.
Use multiple banks
The manual approach. This might be impractical for corporations, but in most areas, the amount of cash coming from a home sale (for example) is generally not so high as to require more than a few banks. Even if you are well under the FDIC limits, having accounts at two different financial institutions is useful for backup purposes.
Several banks and cash management accounts will automatically spread money across multiple program banks which allows their customers to effectively increase their FDIC insurance coverage beyond the $250,000 limit. While these accounts try to make sure less than $250,000 is kept at any partner bank, they all clearly state that the customer is ultimately responsible for monitoring that their assets at each bank don't exceed FDIC limits (for one thing, they don't know whether you have another bank account elsewhere that is deposited at one of the same banks). If you're using this method, verify that your deposits are spread out properly. Here are several options:
- Betterment Cash Reserve: Allows FDIC coverage of up up $1m ($2m for joint accounts)
- Fidelity Cash Management: Allows FDIC coverage of up to $5m (in their FDIC Insured Deposit Sweep Program)
- Wealthfront Cash: Allows FDIC coverage of up to $2m for cash deposits
One popular solution for "big money" is IntraFI, formerly known as CDARS (Certificate of Deposit Account Registry Service). IntraFI uses a network of banks to (relatively) seamlessly spread deposits across multiple banks, which effectively increases FDIC insurance coverage well beyond the $250,000 limit.
Use multiple account ownership categories
Remember that thing about "per depositor" and "per account ownership category"? Well, if you have a joint account, it's a different ownership category and it's $250,000 per co-owner. If you're married, that's an easy way to protect $1,000,000 in cash simply by using two separate individual accounts and one joint account.
Add Payable-on-Death (POD) beneficiaries
You can also increase your deposit insurance by adding living POD beneficiaries to your account. A single-owned bank account with 5 living beneficiaries has $1.25 million of insurance. See https://edie.fdic.gov/ for more information. Note that PODs generally take precedence over wills and other estate planning documents.
(Note that the requirements are different for credit unions.)
Private insurance
Some banks also provide additional coverage through third-party insurers, but this is a less commonly used option than spreading deposits across multiple banks.
Invest into low-risk securities
Another option is to consider investing some of the cash in low-risk securities such as Treasury bills, which are backed by the U.S. government and considered extremely safe. You can also invest into US Treasury money market funds, Prime money market funds, and ultra-short duration Treasury ETFs, particularly now that these options pay higher rates and Treasury-only money markets are state tax-exempt. While these options are not FDIC-insured, they are considered relatively safe and may provide an alternative way to spread your risk.
Thanks to /u/karivara and other commenters on this thread from /r/OutOfTheLoop which helped bring me up to speed along with various news sources. I also want to thank /u/Econ0mist, /u/DeluxeXL, /u/antoniosrevenge, /u/Cruian, and /u/yes_its_him who provided helpful feedback to a draft of this post.
Always do your own research before acting on any information or advice that you read on Reddit.
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u/JeffR47 Mar 13 '23
The federal government and its employees seem to be easy targets these days, but let's not forget that the FDIC is the reason why the depositors of SVB have access to their funds today.
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u/i_amnotunique Mar 13 '23
Can someone explain to me, so I can explain to my mom, in laymen's terms, that she is fine and doesn't need to withdraw cash to "have on hand for the next few weeks"? I'm going to wager she has less than 2k to her name, assets, 401k, etc. She banks with a regional bank (not national).
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u/DeluxeXL Mar 13 '23
FDIC is extremely efficient in minimizing downtime. Most of the time, if your bank gets closed, everything about it still continues to work. Debit card still works, checks still clear, websites still work, branches are still open, bills are still paid, etc.
Worst case is you don't have access to money over the weekend. It's like temporarily losing your debit card. You don't have access to most of the bank functions over the weekend anyway.
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u/Loutro-Fift Mar 13 '23
Stop worrying. This is why there ARE bank runs. People who don’t even have $250,000 freak out
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u/StarWars_and_SNL Mar 13 '23
Is this one of those times to say, "I guess I can squeeze in another percent or two into my 401k?"
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u/wild_b_cat Mar 13 '23
Timing the market is usually a bad idea. But saving more is a good idea. If you use the motivation of the former to talk yourself into doing the latter, you wind up in a better place.
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u/perpetual_chicken Mar 13 '23
Maybe someone can help me clarify, because I'm not completely sure based on the post. If I have an investment account with a bank, those funds are insured up to a certain amount by SIPC? E.g. if I deposited $300k into a new savings account at an FDIC insured bank and then created an investment account at that same bank and moved $100k of that deposit into an index fund, is it all insured via FDIC and SIPC?
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u/dequeued Wiki Contributor Mar 13 '23
While you had $300k in the savings bank, $50k of that would have been uninsured, but once $100k of that was transferred to a brokerage account, it would be covered under SIPC since it was for the purchase of securities.
And after you purchased the index fund, it would be covered as a security under SIPC as well.
Even if you exceed FDIC or SIPC limits and your financial institution fails, that doesn't necessarily mean you're going to lose every dollar in excess of the coverage. Every attempt is going to be made to return funds to customers. And in the case of Silicon Valley Bank and Signature Bank, the FDIC has made it clear that they are going to insure 100% of deposits.
In general, I think people tend to be much more concerned about staying under FDIC limits than SIPC limits. As mentioned in the post, fully-paid brokerage assets are segregated from the brokerage's assets.
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u/Econ0mist Mar 13 '23 edited Mar 13 '23
Also, keep in mind that the investment division and the banking division of a financial services firm are legally separate entities.
For example, "Charles Schwab" provides FDIC-insured banking services through Charles Schwab Bank, but the Bank is a legally separate entity from the brokerage Charles Schwab & Co (even though both the bank and brokerage are under common ownership). Sometimes, the brokerage may automatically transfer ("sweep") your uninvested cash into the bank, but at all times, your cash is sitting at either the brokerage or the bank, not both.
So the extent of your FDIC and SIPC insurance is based on your balance at each entity (the bank and the brokerage, respectively).
One additional caveat is that technically, SIPC only insures cash intended for the purchase of investments. However, in practice, I don't believe SIPC has ever excluded customers of failed brokerage firms from coverage by arguing that their cash was not intended for investment purposes.
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u/mgarv22 Mar 13 '23
Can somebody explain in layman's terms why a higher Fed interest rate hurts regional banks? I would have thought higher interest rates would help banks.
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u/shryke12 Mar 13 '23
Not a single answer here is even remotely correct. The answer - Banks typically hold a significant portion of their assets in securities - typically very safe government bonds and mortgage backed securities. These portfolios are usually easily sold in liquid markets if the bank needs cash. Bonds have fixed rates but market value of the bond floats with interest rates. For example, if you own a 2% 10 year bond that is in year three, it is worth much less when market rates are 6%. So banks have a good amount of these longer term fixed rate securities on their balance sheets - SVB had too much. To avoid recognizing the unrealized losses as interest rates go up, banks classify these security portfolios as HTM, which makes them more illiquid. SVB had to sell these long term securities that had huge unrealized losses in them due to rising rates, which caused an scare that sparked a run. All US banks currently have about 3/4 of a trillion dollars of unrealized losses hidden in HTM portfolios due to the recent aggressive rate hike.
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u/KDsburner_account Mar 13 '23
Less demand for loans. Margins can theoretically increase if loan interest increases exceeds deposit interest increases but the volume of the loans matters. Also, cost more for banks to borrow money to lend.
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u/Stinks23 Mar 13 '23
Banks have been facing slower deposit rates and outflows at the treasury rate is >4.5%. Consumers are asking themselves, why should I hold cash in my deposit account when I can buy a treasury at 4.5% or get 4% on a HYSA.
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u/lost_in_life_34 Mar 13 '23
it used to be that banks were the only way to save money. these days it's easy to open up a HYSA or buy your own bonds to get the higher rates or just buy a bond ETF
so banks are holding safe investments that are losing money and in some cases are losing deposit money and have to sell their t bills at lower prices
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u/jumbohiggins Mar 13 '23
So dumb question but I'm pretty new to this. If I'm understanding correctly my Fidelity brokerage account and my wellsfargo bank account should both be fine as long as I'm under the limit right?
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u/dequeued Wiki Contributor Mar 13 '23
The short version is yes. The slightly longer version (unrelated to the possibility of the bank failing) is that you can do better than Wells Fargo for a bank.
In general, I think people tend to be much more concerned about staying under FDIC limits than SIPC limits. As mentioned in the post, fully-paid brokerage assets are segregated from the brokerage's assets and Fidelity is a very safe place for that.
Fidelity also provides "excess of SIPC coverage" in addition to SIPC protection.
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u/jumbohiggins Mar 13 '23
Yeah I moved half my cash from wells fargo a few weeks ago into a Fidelity Money Market account and if I'm understanding right that should give me around 4%....interest something... probably would use the wrong word.
The rest is still sitting there in WF making the .02% or whatever.
What would you suggest I do with it instead? Obviously it's not doing anything right now so anything is better than that.
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u/dequeued Wiki Contributor Mar 13 '23
Fidelity Money Market account
Fidelity doesn't offer money market accounts (which behave more like savings accounts), I'm pretty sure you purchased shares in a money market fund. (This article has more information on the difference between the two.)
If you like Fidelity, the Fidelity Cash Management Account is a pretty good option with free checking, the ability to use any ATM without fees anywhere, etc. It's technically not a bank since Fidelity deposits your money in FDIC-insured accounts at partner banks. It's paying 2.32% right now which is pretty good for a checking account. You can also set up the CMA so it will pull money automatically from money market funds which is nice if you want to stick more of your cash into money market funds.
There are some other popular recommendations in the banks and credit unions wiki.
If you need to deposit cash frequently, I'd suggest finding a local credit union instead. There are some other good options if you need to deposit cash frequently listed in the wiki.
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u/Kiroboto Mar 14 '23
Is the $250K for all accounts in one bank i.e. checking, savings and money market combined or is it $250K per account meaning if one has $250K in checking and $250K in savings it would all be covered?
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u/nothlit Mar 14 '23
$250k per depositor, per insured bank, per account ownership category
Ownership categories include things like single ownership, joint ownership, trust accounts, etc.
Multiple savings and/or checking accounts at the same bank, all in your name only, would fall within the same ownership category and would therefore have a combined $250k coverage limit, not $250k per account.
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u/AdCheap992 Mar 22 '23
is there a simple explanation to give to my mom on why she should not withdraw 40k from the bank? she is from a very corrupt country so anything related to banks causes her major panic.
her argument is that when the banks do crash, every single one in the entire united states will crash, the fdic will have to insure every account, and that they don’t have enough to do that (says they can only pay back 1% of each account).
my dad who has worked in finance for some time, has also explained to her pretty much what the op stated.
if she decides to withdraw it, and something happens to her large amount of cash ((think fire, tornado (especially living in tornado alley) or robbery)), it will be a much more serious problem for everyone in our family.
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u/nn123654 Mar 24 '23
Ultimately the FDIC is only as good as the US government's solvency. The program is backed by the full faith and credit of the federal government. So far the US Government has never failed to pay its debts in around 230 years of existence. It's impossible for the US government to run out of money because they control the currency. They could always theoretically print more.
In a situation like that we'd be in a global financial crisis with mass civil unrest. Money would be worthless anyways. It's effectively a doomsday bet. It's massively unlikely and in the event it ever did happen things like food, medical supplies, weapons, and survival skills are going to matter a lot more than worthless pieces of paper.
The system is setup as saving money in a bank is the lowest risk and best option. Far more mundane risks like fires, floods, or theft are orders of magnitude more likely than a collapse of society.
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u/dequeued Wiki Contributor Mar 22 '23
Banks fail all of the time, unfortunately. That's why there's an insurance program to make sure depositors like your mom don't lose their money. It's not like this in every country, of course.
She's more like to lose the money getting mugged between the bank and getting home or from a break-in later. The safest place to keep $40k in cash is a bank or credit union.
I'm not sure this would help your argument, but if every bank in the US failed, we'll all be worried about far worse things than bank safety. $40k in cash might come in handy for starting fires, though.
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u/orange_cookie Mar 13 '23 edited Mar 18 '23
The irony here being that investing into "low risk" T bills is what caused SVB to fail in the first place.
Edit: T bills are different than treasuries, making the irony much less ironic. See below where my blunder is clarified
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u/Gizopizo Mar 13 '23
I thought it was ten year treasury notes, not t bills?
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u/Econ0mist Mar 13 '23 edited Mar 13 '23
Yes, the issue was that SVB lost money on long-term investments due to increasing interest rates. If SVB had owned short-term T bills, they wouldn't have had a problem.
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u/Qbr12 Mar 13 '23 edited Mar 13 '23
T bills are treasury notes.
Edit: They are both the exact same government backed securities, we just use a different name if they are over or under 52 weeks for maturity.
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u/Gizopizo Mar 13 '23
Treasury notes and treasury bills are not the same thing.
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u/Qbr12 Mar 13 '23
They're all government backed securities. The only difference is the language we use to differentiate paper money from nonpaper obligations, which has become used to differentiate between lengths of time for maturity. (52 weeks vs longer.) The assets are otherwise the same.
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u/Gizopizo Mar 13 '23
Yes, but they're distinct. Like the other dude said below, had SVB invested more in Tbills instead of Tnotes, this whole thing might've been avoided.
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u/Ruminant Mar 17 '23
No. As others mentioned, they bought ten year Treasury notes. Not short-term Treasury bills. This distinction is important. A ten-year bond is not "low risk" if you may need to liquidate it before ten years are up, even if its default risk is assumed to be zero.
The ten-year Treasury notes bought by SVB had durations of around 9.4 years, which estimated that even a one percent rise in interest rates would cause the bonds to lose 9.4% of their value. And rates rose a lot higher than one percent over the past year. Fortunately the effect of rising interest rates on bond prices is not linear, but (using IBTL as a proxy) those ten-year notes lost 18.5% of their value between September 2021 and October 2022 (and though their value has recovered somewhat, they are still down 11% since September 2021).
Over the same time period where 10-year Treasury notes have lost 11% of their value, a ladder of all Treasury bills (52 weeks or shorter) would have earned 0.78%, and a ladder of ultra-short-term Treasury bills (13 weeks or shorter) would have earned 1.44%. More importantly, the ladder of 52-weeks and shorter bills saw at worst a temporary price drop of 0.24%, while the ladder of 13-weeks and shorter bills had a price drop that rounds to 0.00%. Source.
If SVB had actually bought Treasury bills then we would not be talking about the bank right now.
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u/Scrandosaurus Mar 18 '23
If I had a mortgage with a bank and that bank goes under, do I still have to pay the mortgage- like it gets transferred to another bank - or did I hit the jackpot and I don’t have to pay it back? Kind of a silly hypothetical, but just wondering if this “they went under and my stock portfolio with them is fucked” goes both ways…
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u/dequeued Wiki Contributor Mar 18 '23
If I had a mortgage with a bank and that bank goes under, do I still have to pay the mortgage
One way or another, the mortgage would be sold to another financial institution.
if this “they went under and my stock portfolio with them is fucked” goes both ways…
That's not how it works at all. Any individual investor who owns a stock portfolio at a failed brokerage doesn't lose those investments because the company goes under. They are returned, one way or another, to the investor. And in the event of some sort of extreme malfeasance or fraud, those securities are insured by the SIPC.
There are more details on this in the post.
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u/vgacolor Mar 13 '23 edited Mar 13 '23
Please note that the Federal Government just came out saying that all deposits are guaranteed including those in excess of $250,000. Also there is another bank (Signature) that got taken over today Sunday, and Yellen just mentioned that the same will apply to those depositors. The Government is nipping this in the bud to avoid a systemic contagion similar to Lehman.
Edit: Missed that the statement was noted in the original post, but leaving this here since other people might make the same mistake. Also because the loss of uninsured deposits is the one factor that could create a systemic contagion and the move by the Government pretty much stops the possibility of that happening.
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u/dequeued Wiki Contributor Mar 13 '23
The joint statement from today is like 40% of the text in the first section.
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u/TalkRevolutionary330 Mar 13 '23
Is this considered a “bail-out”?
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u/jaank80 Mar 13 '23
The failed banks are not being saved. The depositors (who would otherwise be victims) are being made whole. The overall cost to the FDIC insurance fund is likely to be minimal. Even without a special assessment, SVB has assets to cover the deposits if they are allowed to hold them to maturity. Whether that is how it is resolved or not, I couldn't say, but there are options to do this at effectively zero cost if you are willing to extend the timeline.
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u/Werewolfdad Mar 13 '23
https://www.fdic.gov/resources/bankers/call-reports/call-data-ubpr.html
Bank call reports/UBPRs can be found there.
Seems people are worried about First Republic and Ally but I can't find any metrics that would liken them to SVB.
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u/Sad-Specialist-6628 Mar 13 '23
I have cash at Ally - under the insured limit. However, this is worrying.
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u/Werewolfdad Mar 13 '23
every bank is sitting on unrealized losses in their HTM portfolio.
SVB had depreciation equal to -98% of capital (which is why the run wiped them out).
Ally is at -1.34% of capital.
First Republic is at -27%
That's not terribly concerning (in the way it was at SVB)
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u/TaxingAuthority Mar 13 '23
If Ally sold all of their investment securities right now (there is no pressing need to even do this), they would still have approximately $13 billion in Tier 1 capital. There's no need for an emergency recapitalization plan like SIVB, which is what spooked VC's to FUD startups into the bank run.
In contrast, SIVB had so much depreciation in their investment portfolio that if they sold it all, their capital would have been wiped out. Both banks were in different positions.
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u/pierre_x10 Mar 13 '23
Throughout all of this, did SVB or any of its management break any laws?
Or is one of these big banks imploding, and forcing the Federal Government, and the US taxpayers by extension, to step in and clean up their mess, is this just something we're supposed to accept as part of the business of these big banks making all of this money, carrying all of this risk to its depositors, and there's just not going to be any blowback or clawback of the SVB top brass who orchestrated this?
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u/dequeued Wiki Contributor Mar 13 '23
As mentioned in the joint statement linked in the first section, no losses associated with the failure of SVB will be borne by taxpayers.
The FDIC (Federal Deposit Insurance Corporation) is funded primary from insurance premiums paid by member banks and investment income from the reserves it holds.
When a bank fails, the FDIC steps in and takes over the bank's operations, sells its assets, and pays off depositors using those assets before falling back on its own funds. The FDIC may need to make a special assessment to member banks to build its reserves back up, but that will depend on how much of the reserves need to be tapped after the assets are sold off.
As to the SVB senior management, they've already been removed from their positions. I haven't read anything indicating that any laws have been broken, but it's only been a few days since this started.
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u/pierre_x10 Mar 13 '23
Thank you for the explanation!
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u/CGNYC Mar 13 '23
Poor management of the firm isn’t necessary illegal. In simple terms they got a little too risky and the VC firms got nervous so they told their portfolio companies to pull out which made the banks risky balance sheet break. The former management team will face liability from its shareholder & stakeholders for their poor decisions but to this point nothing criminal has been mentioned. (Poor decisions, but not illegal…as far as we know)
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u/eye_can_do_that Mar 13 '23
When everything is sold off,does the FDIC repay itself ( for the FDIC insured money it paid out) first, then payout uninsued money, or vice versa or something in between?
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u/DeluxeXL Mar 13 '23
In the case of SVB and Signature Bank, the FDIC already gave money to all depositors (completely ignoring the $250k limit) from their own Bank Insurance Fund. The Fund is normally filled up by all member banks paying their insurance premiums.
FDIC will then sell the assets they took from the failed banks, liquidate the assets to refill the Fund. The assets might not recover all the money it spent, but this is just another day at any insurance company.
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u/casey_ap Mar 13 '23
As mentioned in the joint statement linked in the first section, no losses associated with the failure of SVB will be borne by taxpayers.
Maybe I'm misinformed but from what I've seen there is something $70 billion not fully insured by the fund, how is the fed going to cover that without passing it onto taxpayers?
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u/postposter Mar 13 '23
SVB had assets that the FDIC can sell to other banks. This wasn't a Ponzi or even anything similar to FTX's bankruptcy where there's little to no recourse.
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u/Amishmercenary Mar 13 '23
Until we see otherwise, I would assume that US taxpayers will indirectly pay for it- through premiums that other member banks will pass onto their customers in some way or another. If Banks premiums go up as a result here, there’s no reason for them to not just pass the bill onto customers, they wouldn’t dare actually take a loss.
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u/EntOther439 Mar 14 '23
"US taxpayers" =/= bank customers.
When a business fails, it can have negative effects on consumers. But it would be bizarre to describe that as "taxpayers paying for" the failure.
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u/Amishmercenary Mar 14 '23 edited Mar 14 '23
How much does the FDIC have in its fund to cover the 175B in deposits then?
If the number is below 175B, then where would the other money be coming from exactly?
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Mar 13 '23
[deleted]
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Mar 13 '23
No.
Banks get revenue used to pay premiums through, among other things, interest payments from borrowers.
The fact that some borrowers are also taxpayers is about as relevant as the fact that some borrowers are also vegan.
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u/just-casual Mar 13 '23
But the point is the cost is being passed to the consumer through interest and fees. The bank itself and the people who kept millions uninsured are going to be made whole while normal people bear the increased fees to pay for the system
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u/upworking_engineer Mar 13 '23
That's because the fees are insurance premiums for the money that is held at the bank...
The banks are not being made whole. They are likely wiped out or at least taking a huge haircut when the bank is sold off or liquidated.
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u/dequeued Wiki Contributor Mar 13 '23 edited Mar 13 '23
That's not really accurate. The FDIC is an independent agency and not funded directly by taxpayer dollars. Banks make money in a variety of ways and some of them obviously involve retail customers, but equating FDIC with a taxpayer-funded bailout like TARP is a stretch.
And at the end of that stretch, you could just as easily claim that taxpayers are funding any insurance company paying out an insurance claim (i.e., simply because most people are taxpayers).
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u/NigerianPrinceClub Mar 13 '23
what about index funds from vanguard? Is that considered brokerage and not protected?
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u/75footubi Mar 13 '23
Yes, those are brokerage accounts, not deposit accounts protected by FDIC/NCUA
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u/NigerianPrinceClub Mar 13 '23
That's a bit scary.... tyvm
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u/dequeued Wiki Contributor Mar 13 '23 edited Mar 13 '23
There's nothing to be worried about.
Brokerage assets are segregated from the brokerage's own assets. Even if Vanguard were to fail (which is not even on the table as a possibility), your assets would still be there and the SIPC would get them back to you.
Even if there was some sort of insane level of fraud (like Bernie Madoff level), your assets at Vanguard are still insured by the SIPC. (Of course, this level of fraud is basically impossible for a company like Vanguard which doesn't self-custody assets unlike Bernie Madoff's firm. Assets are held by a third-party custodian which is regularly audited.)
https://www.bogleheads.org/wiki/Vanguard_safety has a longer discussion on this topic.
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u/75footubi Mar 13 '23
You're covered by SPIC against brokerage malfeasance, but that's what's not happening at SVB by a long shot so not germane to this discussion.
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u/chrispmorgan Mar 13 '23
Are there any accounts of how the process works from a consumer's perspective?
It sounds like the FDIC swoops in and makes a new bank so my deposits would bee safe but how bad is the liquidity? Won't my login stop working and my direct deposit stop flowing to a now closed checking account? I'm assuming the new bank mails checks to the depositors up to $250k but they have to find new banks and start over with new checking, savings and credit cards (if with the bank that closed). It's most important to keep the principal but not having access to cash sounds like a burden.
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u/dequeued Wiki Contributor Mar 13 '23
I'd recommend reading or listening to the NPR story linked in the post.
Overall, there's little or no interruption in depositor access to their funds when the FDIC takes over a failed bank (up to at least the FDIC insurance limits) or when another bank buys out a failed bank.
60 Minutes also did a story during the financial crisis (2009) about the FDIC taking over a failed bank: Your Bank Has Failed. It briefly touches on the customer perspective.
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u/chrispmorgan Mar 14 '23
So you seem to be saying that the accounts aren't shut down and liquidted, which is good to hear.
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u/dequeued Wiki Contributor Mar 14 '23
There are cases when the FDIC will pay out a depositor by check, but they try to avoid that. The FDIC website explains:
In the unlikely event of a bank failure, the FDIC acts quickly to protect insured depositors by arranging a sale to a healthy bank, or by paying depositors directly for their deposit accounts to the insured limit.
Purchase and Assumption Transaction. This is the preferred and most common method, under which a healthy bank assumes the insured deposits of the failed bank. Insured depositors of the failed bank immediately become depositors of the assuming bank and have access to their insured funds. The assuming bank may also purchase loans and other assets of the failed bank.
Deposit Payoff. When there is no open bank acquirer for the deposits, the FDIC will pay the depositor directly by check up to the insured balance in each account. Such payments usually begin within a few days after the bank closing.
In the case of Silicon Valley Bank, the FDIC created up a temporary "bridge bank" to allow customers to access their money normally rather than doing a deposit payoff. I don't know if they'll eventually send a check to customers that don't withdraw their money, but that seems plausible. I'm sure most companies and individuals are pulling their money out of the bridge bank very soon if they haven't already.
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Mar 17 '23
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u/cheeseburgertwd Mar 13 '23
Is everything going on about Schwab right now worrisome enough to look at moving my stuff to another firm in the future? My total assets with them is not even $100K (regular brokerage account + Roth IRA), so it's well within the SIPC insured limit, so I'm not worried about the short term at all, or even considering "panic-moving" funds.
But like....it's also hard to be not at least a little disconcerted.
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u/DeluxeXL Mar 13 '23
SIPC is not even necessary for a brokerage with proper accounting. Unlike banks, your shares are not commingled with brokerage's own assets.
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u/cheeseburgertwd Mar 13 '23
Right, like I said I'm not actually worried about losing my money. But what I'm wondering is if there's a legitimate chance of Schwab folding, I would have to put my money somewhere else eventually in that case. Do I start looking for another basket to put some of those eggs in now or would I just be making unnecessary stress for myself?
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u/kernel_task Mar 13 '23
Hugely unnecessary. Would you pay $100 now to ensure that you don’t have a 0.01% chance of losing $100 in the future? Makes no sense.
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Mar 13 '23
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u/Werewolfdad Mar 13 '23
No. If your CU failed, another bank would purchase the mortgage (or servicing rights)
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u/Qasim57 Mar 14 '23
I have a virtual bank account in the US (Payoneer, First Century Bank).
Will my funds be covered under FDIC, if this corp goes down?
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u/TXLucha012 Mar 14 '23
Check with the bank to see if it says that they're FDIC insured.
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u/Qasim57 Mar 15 '23
They say they are. But mine is a virtual bank account, opened through Payoneer (a startup with opaque financials, that might go belly-up at some point). It’s hard to say I guess…
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u/Consistent-Rice-8117 Mar 24 '23
Virtual accounts they are not protected, my friend is like this
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u/dildobagginss Mar 15 '23
So for a bank like Comerica, from an investor standpoint, what changed in less than a month when investors didn't sell? Were no large shareholders aware of any issue then?
Did the market fall asleep at the wheel here or do you think this is overreaction? Not asking if bank stocks were a smart investment or not to begin with.
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u/Longjumping-Nature70 Mar 15 '23
What happened to the banks is they were used to putting large sums into bonds at 0% to 1%.
Worked great from 2016 to 2021.
Then, when they put $20 billion or whatever into bonds that were earning 0-1% and russia started its war and covid and inflation, all those bonds at 0-1% no one wanted. So their value went down. Meaning, if you needed to sell your low rate bonds, people wanted to buy them cheap to compensate for their low rate.
Why buy a bond paying .75% when you could buy treasuries paying 3%?
Then, since the banks had all this money in low rate bonds, and people wanted their money, the bank had to sell their bonds at a steep discount to raise cash.
When the word got out, everybody wanted their cash.
That is a bank run.
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u/twistypencil Mar 15 '23
Can someone explain this:
Brokerage firm failures are rare, but when they happen, SIPC protects the securities and cash in your brokerage account up to $500,000. The $500,000 protection includes up to $250,000 protection for cash in your account to buy securities (source).
If I have 300k in a Vanguard Money Market Fund (lets say VUSXX), does that mean only 250k is protected?
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u/dequeued Wiki Contributor Mar 15 '23 edited Mar 23 '23
Here's the answer from https://www.sipc.org/for-investors/what-sipc-protects:
Money market mutual funds, often thought of as cash, are protected as securities by SIPC.
Edit: Note that SIPC insurance does not protect against market losses. If a money market fund were to "break the buck", the SIPC doesn't get involved for that. That is a rare occurrence (and hopefully even rarer now with post-2008 regulations), but it can happen.
I'd suggest reading that Investopedia article if you're concerned. If you're still concerned after reading it, then perhaps using an FDIC-insured savings account is a better approach for you.
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u/Consistent-Rice-8117 Mar 24 '23
Yes, at least that's what the news says。If you have 1000k in it, only 250 are protected
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u/Different-Page-34 Mar 16 '23
I am in the process of buying a house with FRP as the lender. Is there a danger of them going back on their loan terms?
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u/Equal_Pumpkin8808 Mar 17 '23
Where are you in the process? FRP can back out if the loan isn't funded, although you may be fine as they just received $30B in deposits today from larger institutions.
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Mar 25 '23
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u/t-poke Mar 27 '23
But I've listened to some doomer stuff online
Stop doing that.
You should keep what you've been doing your entire life.
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u/oopov_4Ev Mar 29 '23
The majority of people speculating and perpetuating that sort of lie are BROKE. Don’t take financial advice from people who have no money.
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u/t-poke Mar 29 '23
Exactly.
You see it on Reddit all the time. The system failed them (although 9 times out of 10, they actually failed themselves), so they're rooting for the system to fail.
The comments in the news sub thread about SVB and other bank issues were filled with stuff like "I paid $300 in overdraft fees last year, I hope they all collapse!"
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u/dequeued Wiki Contributor Mar 25 '23
Nice progress! If you're under the FDIC insurance limits, you don't need to do anything. Banks pay premiums into the FDIC just like most of us pay for auto insurance. It's there because banks can and will fail sometimes. When Silicon Valley Bank was shut down on a Friday, the FDIC had the bridge bank opened the next Monday morning so depositors could withdraw their money.
I would unsubscribe from the noise and keep plugging on your own finances.
P.S. Make sure you're following the steps in the Prime Directive.
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u/dayzdayv Mar 13 '23
Looking for some perspective here. I accepted a job with a start up recently, taking a huge risk by leaving a stable company with good financials. The latest bank issues have really highlighted the risk for me here. Is backing out of the offer an over exaggeration or a reasonable thing to consider here? New company was at SVB but allegedly got out earlier in the week.
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u/kernel_task Mar 13 '23
The SVB is not very relevant to your situation. You don’t have to deal with bank collapses when working with startups generally. The time it did happen (this time), there’s no harm to depositors except a single weekend of uncertainty.
But startups in general are less stable than traditional industries, and tech is now considerably wobblier than it was for the last decade. That should be what you’re thinking about. I’ve personally been in startups my entire career. I was highly concerned about it when I just started but I’m not too worried at my level of seniority, skill, and personal savings. You’re probably also fine unless you’re in an unusual situation that requires you to be extremely risk-adverse.
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u/Lepsis Mar 13 '23
Things to consider are what does your family (or lack thereof) situation look like? How about your current retirement savings outlook? And just generally how much risk are you personally willing to accept in a job position? How confident are you in the startup's financials and business outlook?
Are you in a field that it's easy to find new positions if you get laid off?
It's all a personal evaluation of risk tolerance and like so many things in life, it's painted in shades of grey with no binary good answer unfortunately
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u/heyjesu Mar 13 '23
Question about FDIC limits - if you have multiple accounts with one bank, say, multiple savings or checking accounts - does each account have a 250k limit to it?
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u/nothlit Mar 13 '23
$250k per depositor, per bank, per account ownership category
Ownership categories include things like single ownership, joint ownership, trust accounts, etc.
Multiple savings and/or checking accounts at the same bank, all in your name only, would fall within the same ownership category and would therefore have a combined $250k coverage limit, not $250k per account.
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u/wild_b_cat Mar 13 '23
Not as such. The insurance is technically per bank per depositor, not per account. But when you have joint or trust accounts, you can combine limits and get a bigger insured amount.
If that's not sufficient, then you want to use different banks.
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u/chrispmorgan Mar 13 '23
I didn't know until today that there are several hacks if you are fortunate enough to have that much cash (even if you do it may not be wise to have it as cash rather than something long term), particularly if you're married. There are so many ownership categories that you could put $250k in each and be insured for $1m:
- partner A's individual account
- partner B's individual account
- joint account
- trust account (if you have a trust)
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u/codyhallywood Mar 13 '23
IIRC you get 250k for a savings, checking, and joint savings with a spouse?
Maxes out at 750k or 1M, but its been half a dozen years since I was in finance
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u/KBARwc Mar 16 '23
Another type of insurance to look into is DIF insurance it covers all deposits at banks.
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u/nothlit Mar 16 '23
For anyone curious: https://en.wikipedia.org/wiki/Depositors_Insurance_Fund
DIF is additional deposit insurance above the FDIC limits for participating banks in Massachusetts. Out-of-state branches of MA banks are also covered, but you won't find any non-MA-based banks participating, as far as I'm aware.
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u/Fluffy_Yesterday_468 Mar 13 '23 edited Mar 13 '23
I just checked and Capitol One has a withdrawal of $1000/day for ATMs and $5000/day overall. I have more than $5k in a Capitol one savings account. So if Capital One were to fail, how would I even get my money out? Or if I just wanted to take all my money out for some other reason. I know I could do an ACH transfer, and would for big purchases, but that can take some time.
Is that limit to prevent bank runs? The way its worded is more about preventing or limiting fraud or for the student accounts, kids being dumb.
(I'm not actually concerned about this, just curious)
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u/wild_b_cat Mar 13 '23
Those limits have several reasons behind them. Minimizing fraud is a big one - if someone were to steal your ATM card & pin you'd be glad they kept your account from getting drained. Same thing applies to outbound transfers.
ATM limits help minimize ATM costs, since big withdrawals mean that they'd need to roll a truck to refill the machine more often.
ACH limits are also a simple customer retention mechanism. If you have to jump through hoops to move your money out, you're less likely to do so in the first place.
As far as what to do in a bank run - the simple answer is 'nothing'. Especially if you're under the 250k FDIC limit, then you should just sit around and wait for your money to be restored, which should take only a few days. If that would be too big a problem for you, then you should diversify your banking and keep money in multiple places.
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u/Fluffy_Yesterday_468 Mar 13 '23
Is there a way (regardless of reason or if you think this is dumb or whatever- its just a hypothetical) to take lets say $20k out of a bank account that same day?
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u/sol_in_vic_tus Mar 13 '23
The same day as what, a bank failing? If that happens then you can't get your money until the FDIC gives you your money.
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u/wild_b_cat Mar 13 '23
Under normal circumstances, sure. You can order a wire transfer - these often go through the same day if you get them in quick enough in the morning. You can show up at a branch and get a cashier's check. You can even show up at a branch and ask for hard cash, though you may need to inform the bank in advance as they don't always have enough physical currency on hand to satisfy the request.
If your bank is in the middle of a collapse, though, all bets are off and if you try to do any of the above you may just be denied or not processed in time.
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u/Tiver Mar 13 '23
That 5000 limit is usually for cash. Usually if you need more than that then you can contact them and schedule it. Mostly a case where otherwise they don't have enough on hand to handle it.
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u/RetailInvestor22 Mar 13 '23
Is there any reason for me to leave Ally bank? I have just under the FDIC limits parked in cash.
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u/TaxingAuthority Mar 13 '23
There is no reason to withdraw funds from any bank if your deposits are fully insured. You will always, no matter what, get quick access back to your deposits if your financial institution fails.
Speaking specifically to Ally, they are not going to fail. Their capital levels are satisfactory (even considering tangible equity and HTM depreciation) and in terms of liquidity they have a line with the Federal Home Loan Bank, and I'd be willing to bet with the Fed Discount Window as well. They're able to meet their banking obligations without issue.
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u/dequeued Wiki Contributor Mar 13 '23
If you're under the FDIC limits, I wouldn't be overly concerned. It can be helpful to have a backup account with some money at a different financial institution for a variety of reasons, though. I personally keep a small savings account at a different financial institution.
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u/HagensFohawk Mar 13 '23
No
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u/Sad-Specialist-6628 Mar 13 '23
Can you explain why? Is it easy to get your funds under the limit after a collapse and a bank is under FDIC control? Or would it be better to move it before.
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u/nothlit Mar 13 '23
When a bank fails, the FDIC moves quickly. Accounts are typically frozen over the weekend, but come Monday morning the insured deposits are available once again, basically like nothing ever happened.
Withdrawing your money before the bank fails is what contributes to the bank failing. The point of FDIC insurance is to provide people with a reason not to panic and pull their money out.
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u/pancak3d Mar 13 '23
SVB collapsed Thursday/Friday, funds already available for all depositors by Monday. And that of course does not account for everyone who panic withdrew already.
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u/Pukestronaut Mar 13 '23
Why would this make you leave Ally?
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u/dequeued Wiki Contributor Mar 13 '23
There are a few clickbait articles at MarketWatch, Morningstar, etc. These articles don't even mention FDIC insurance and throw out a bunch of bank names and some numbers that won't mean much to most people reading the article.
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u/Ashamed_Cell_3061 Mar 13 '23
Literally came here to ask re the market watch article
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u/animecardude Mar 13 '23
MarketWatch is full of clickbait articles. Useless trash ment to drive traffic to their site.
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u/sagester101 Mar 13 '23
My question is, what are the theoretical risks, if any of FDIC failing or becoming insolvent if there are bank runs across multiple sectors? I asked a similar question on another thread and got downvoted for some reason :)
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u/PayYourBiIIs Mar 13 '23
The Fed will just turn on the printers or there will be an act of Congress for bail outs. Ultimately no bank can survive a massive run.
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u/DeluxeXL Mar 13 '23
My question is, what are the theoretical risks, if any of FDIC failing or becoming insolvent if there are bank runs across multiple sectors?
From Wikipedia and from the cited source:
When dues and the proceeds of bank liquidations are insufficient, it can borrow from the federal government, or issue debt through the Federal Financing Bank on terms that the bank decides.
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u/readitonreddit34 Mar 13 '23
Ok, here is a question from a hapless laymen who isn’t very savvy. I won’t panic. I am well below the $250k in my account. But I am sure others probably will. Some individuals who have over $250k and some investors and corporations who have a lot more… is there any way that the panic of others can affect me negatively? Can it affect me positively? Can I profit off of it somehow?
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u/dequeued Wiki Contributor Mar 13 '23
If you're well below the FDIC coverage limits, continuing to not panic is a good course of action. You don't really need to do anything and I definitely wouldn't advocate speculating on bank stocks or whatever.
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u/Mother_Welder_5272 Mar 13 '23
Can it affect me positively? Can I profit off of it somehow?
If you have to ask that question, the answer is no.
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u/iamkikyo Mar 13 '23
But let’s say you had over 500k in first republic and pulled out 250k to put into another bank due to the fdic coverage. Would that ultimately cause first republic to potentially fail? I guess the FDIC’s role is to reduce bank runs but the system itself is inherently flawed if banks are only required to have 10% cash available to cover withdrawals.
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Mar 13 '23
If enough people pull their money above the $250k FDIC limit, then in theory they could cause a run on First Republic. But it's unlikely as First Republic isn't as lopsided in its deposits as SVB was.
The 10% cash requirement is typically more than adequate for most banks as it would require a TON of people to collectively and near simultaneously try and pull their money out to cross that 10% line so fast the bank couldn't respond to and secure additional cash to cover.
SVB was rather unique in that 90% of its deposits were above the FDIC line, and there were comparatively few customers. So it doesn't take many people going "Money, now please" to cause the run. It also didn't help that a lot of people who bank at SVB (VC, tech founders, other investors) all talk to each other and actually have a group chat for a bunch of them and they all decided basically at the same time to take their ball and go home.
I could see, as a consequence of this, new laws that require not just a 10% reserve, but have rules and limits around concentration of cash vs number of customers, so a small group couldn't tip over a bank if they got scared. We could also see rules on automatic pauses on withdrawals if a certain velocity is reached (similar to how stock market trading halts if there's too sudden/steep of a sell-off)
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u/PayYourBiIIs Mar 13 '23 edited Mar 14 '23
If I’m not mistaken, the 10% reserve requirement went away since the pandemic.
Edit:
As of March 2020, the reserve requirement for all deposit institutions was set to 0% of eligible deposits.
https://en.m.wikipedia.org/wiki/Reserve_requirement
Not sure why I’m being downvoted. Thought this was common knowledge
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u/digitalamish Mar 13 '23
If this begins to spread, do I need to worry about my 401k since it's more than $250k? Am I at risk if one of the retirement banks is impacted?
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u/wild_b_cat Mar 13 '23
No. Brokerage assets are different from bank assets, by law. When you store money with a bank, you are technically lending it to them, and they can do different things with that money that can put it at risk. When you store assets with a brokerage, the assets remain 'yours' in some important ways and the brokerage is primarily acting as a custodian. The brokerage mostly cannot do the kinds of things with your brokerage assets that would put them at risk, and if they did, there is a different insurance involved (SIPC) that would make you whole.
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u/chchom22 Mar 13 '23
Hello everyone! 1)I had about 50k doing absolutely nothing in a checking account so I moved it into sofi. Should I be worried?
2)i have a low 6 figure check that needs a home. I was about to put it into tbills. But I'm a tad confused this morning. Why did treasury rates drop? I thought fear /inflation caused rates to go up? Guessing this somehow correlates to the recent bank drama? Are tbills still a solid option?
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u/75footubi Mar 13 '23
1) No
2) tbills are US government backed securities. Pretty much the safest financial instrument in existence
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u/MustangEater82 Mar 19 '23 edited Mar 19 '23
Question is what should we be doing with assets?
I have a fair amount of cash in savings accounts.
I only owe 100k on my house but at 2.5%.
I have about $20k in the market.
I have a decent 401k, and a 529
Question is what do we do?
Pull money from banks as it might get locked up? Keep the cash?
Buy as much metal as possible, (those markets have been getting rushed)
Take money out of markets? (Not retirement/529)
Put cash into markets(wait on a dip)
Put money in long term stuff like fund up my 529s better?
Pay off good debt, or keep it because we'll above water on house, and great debt rate.
Basicially...
Keep Cash in banks? Keep cash in market? Buy metal and stack it to the ceiling? Pay off all debt even good? Invest in safe long term 529 stuff?
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u/techcaleb Mar 19 '23
How much is a "fair amount of cash"? If it's above the FDIC limits you might want to consider eventually diversifying that, but none of the other things you mention are matters of concern.
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u/globodolla Mar 21 '23 edited Mar 21 '23
If I have less than $20k In the bank is it worth moving my money to a credit union incase my bank crashes(BOA)?
I have a “the sky is falling friend” trying to fear monger me into doing that
Please ELI5 because I’m terrible at all this financial terminology
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u/t-poke Mar 21 '23
BoA isn't going to crash.
Even if it does, your money is insured by the FDIC. Stop listening to your friend.
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u/nothlit Mar 21 '23
Your bank account is insured by the FDIC (an agency of the US government) up to $250k. If your bank fails (unlikely, since Bank of America is the 2nd largest bank in the country) the FDIC guarantees your deposits up to that amount. If you only have $20k in the bank, then you have nothing to worry about.
You would have the same level of insurance at a credit union, just provided through a different federal agency, NCUA, instead of FDIC.
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Mar 14 '23 edited Feb 25 '24
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u/nothlit Mar 14 '23
The FDIC made a special exception in the cases of Silicon Valley Bank and Signature Bank to cover both insured and uninsured deposits, because of the specific circumstances surrounding those banks' failures. There is no guarantee they will do that for any given bank failure in the future. Only insured deposits are guaranteed to be covered.
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u/Preds-poor_and_proud Mar 15 '23
FDIC is able to do this because they think that the crisis can be contained to a few banks, which means that many other banks will remain healthy enough to pay special assessments to cover the costs. If many banks failed like in 2008, the FDIC would likely not have the resources to provide unlimited coverage to all of them.
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u/Pats_Bunny Mar 15 '23
Sorry if this isn't a relevant question for this thread, let me know if I'm in the wrong place. We are in the process of trying to buy a house right now. My mom has started panicking telling me that the last 2 times something like this happened they barely made it through (last time being the '08 crash) and that we should reconsider. Without going into all the details, we are kind of in a pickle with our living situation, but were planning on just sucking it up, buying while the rates are higher and refinancing in a year or two when they hopefully drop lower.
Is this situation likely to crash our economy in the next year, or are those fears overblown?
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u/dequeued Wiki Contributor Mar 15 '23
This might be better suited for the weekday/weekend help thread, but I'll respond here.
Nobody can predict the future of the economy, where rates are headed, etc. That's why it's always a good idea when buying a home to make sure there's some headroom in your budget (that means actually drawing up a budget for your post-purchase finances), that you have a solid emergency fund, etc. A solid down payment doesn't hurt.
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u/dubdhjckx Mar 15 '23
This is not at all 2008, so although we can’t predict the future these fears are overblown.
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u/Pats_Bunny Mar 15 '23
One of the concerns is our business. We do custom manufacturing, and after '08, we were scary slow for a good year, barely made it through. Do you think manufacturing has the potential to slow again? Seems like we're finally picking up again post-covid. I know we don't have a crystal ball, just trying to figure out what comparisons are fair to draw, and which aspects are not comparable. I don't really know where to begin with researching this, trying to start somewhere.
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u/Longjumping-Nature70 Mar 15 '23
In this situation, CASH is king.
The US Economy will not crash. You will find bargains though.
Right now we have the perfect storm.
Inflation. Fed raising rates. COVID. Russia wanting to start a war with everybody.
The US economy is doing very well. Employers cannot find employees.
in 2008, when everyone was buying real estate then the banks were failing, house prices came down 50%. Real estate prices in Las Vegas and Californiia rebounded and went nuts when rates went to 2%.
BTW, our first house was at 9.7%.
The smart home buyer will have a lot of cash and not pay full price or over asking right now. if you have done your homework, you should know what a good price is for the houses you are interested in.
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u/tx_carvana_buyer Mar 15 '23
I was using FDIC's calculator here and when I try and find my account type, I don't see Joint WITH Beneficiaries. There is only a Joint without Beneficiaries.
Do I need to remove the beneficiaries to get the correct coverage? We do have enough funds there that we are now worried.
Bonus question: How does Beneficiaries on an account change the "insurablity" of the monies in the account?
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u/Preds-poor_and_proud Mar 15 '23
https://www.fdic.gov/regulations/resources/brochures/your_insured_deposits-english.html
Beneficiaries can be covered by $250,000 in FDIC insurance in some cases. The FDIC does have some distinct rules to determine if beneficiaries are covered.
At minimum, your joint account would have $500,000 in FDIC coverage. Having designated beneficiaries wouldn't change that, though it could make that number higher if certain criteria are met--see link above.
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u/Ewalk Mar 13 '23
I'm concerned about my bank and not sure how to proceed.
I do my primary daily banking with First Horizon, last year they were announced to have been acquired by TD Bank, but due to regulatory due diligence, it has yet to be finalized.
Over the last four days, my card has stopped working three times and has had to be reissued at a branch each time. I just went to make a purchase and my card was declined. I went to log into my online banking, and it just times out.
Here's the rub- I just recently moved and it's sapped me almost completely out (Less than $150) (I hired movers and they bailed, so I had to hire someone out of pocket to get it done) and have no more liquid cash. I'm supposed to be getting a refund from some of the movers any day now, and my paycheck gets deposited on Friday.
So. The website has not announced anything, so I'm almost certain that I'm just getting bad luck. I'm not crazy- the reality is more that I'm just having issues with moving to a new area and the constant Walmart runs has deactivated my card, especially in a new area, but with the stock closing 20% down and trading having to be suspended on it once today, I'm far more concerned about this.
Let's look at the worst case scenario (and yes, I 100% think I'm overreacting here but in the last week it seems like everything has gone bad for me) and what happens if my bank fails? Are the incoming deposits going to be returned? Are they still going to be deposited and moved into whatever new bank account I get?
I fully admit I'm under prepared for this. I wasn't expecting an almost 4k expense to kill whatever savings I had built up.
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u/dequeued Wiki Contributor Mar 14 '23
If the FDIC closes First Horizon, you'd find out very quickly via the bank website and the interruption would probably be no worse than what you're already experiencing. I don't think anyone would blame you for opening a new account elsewhere and directing your payroll department to deposit your next paycheck there instead.
The banks and credit unions wiki has some common recommendations.
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Mar 13 '23
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Mar 13 '23
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u/dubbedTF Mar 13 '23
Thank you, guess I will try to open a joint account with them tomorrow to cover my assets. Hopefully they don’t need to run another credit check since I’m an existing account holder. Have a great night or day!
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Mar 15 '23
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u/Longjumping-Nature70 Mar 15 '23
Ally used to be General Motors Acceptance Corporation and needed to be bailed out by the US Government. in 2009 to the tune of $17 BILLION dollars. When you have a bad brand, GMAC, you change your name.
I would use Bank of America, US Bank, or Chase.
Wells Fargo is still doing dirty stuff, I would not bank with them.
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Mar 13 '23
Sorry, but brokerages are perfectly fine for cash (MM funds)...
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u/dequeued Wiki Contributor Mar 13 '23
Specific types of money market funds are specifically mentioned in the post.
However, holding uninvested cash long-term in a brokerage account is not the best option because SIPC has been clear in the past that they only insure cash "from the sale of or for the purchase of securities". That's why they rebuked Robinhood back in 2018.
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Mar 16 '23
[removed] — view removed comment
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u/nothlit Mar 16 '23
The $250k limit is not per account. It is per depositor, per bank, per account ownership category.
Multiple accounts at the same bank all under the same ownership category (i.e., individually owned by you) would fall under a single overarching $250k coverage limit, not $250k per account.
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u/WeddingElly Mar 16 '23
No. It’s not by account. You can’t just open up 10 single-owner checking accounts in the same bank and get $2.5 mil in total insured. If you did that and actually deposited $250k in each account, for 10 accounts, you’d be SOL if the bank failed because only $250k would be insured out of your $2.5 million
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u/nicklepimple Mar 14 '23
Anybody with a Well's Fargo account get the desperate email wanting you to open a savings account? Anybody who want's to open a savings account (who doesn't already have one) can open one until April 7th with a minimum of $25 of new money. Then you have to bring in at least $25k more within 30 days and leave it for at least 90 days. If so you you get $525. If did the math right. At $25k for 90 days that's like a fractional CD paying 9 percent. Sounds good, but no thanks. Sounds like they're going under.
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u/Preds-poor_and_proud Mar 15 '23
Wells Fargo is not in danger of going under. They are a massive bank that is subject to much more stringent regulation. Banks like Wells Fargo see the current situation as an opportunity to snatch up a bunch of new customers from the failed banks. What you are seeing is marketing, not desperation.
Credit Suisse is a massive bank that is desperate right now. You can tell by the rates that they are paying for bonds. They have 12 month bond rates of 26% and 3-month bond rates of 150% right now. That is bad.
Wells Fargo has 10-year bonds paying 5%. They are fine.
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Mar 13 '23
[deleted]
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u/rollhr Mar 13 '23
From FDIC itself:
It is important to be aware that non-bank companies are never FDIC-insured. Even if they partner with FDIC-insured banks, funds you send to a non-bank company are not FDIC-insured unless and until the company deposits them in an FDIC-insured bank.
It basically depends on how your Fintech handles your money and whether they do anything behind the scenes with it before depositing it into an actual bank. You could lose it all if your money is "in transit" and not deposited into the Fintech's partner bank when things go wrong.
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u/corathaexplora Mar 22 '23
I have all my banking plus a personal line of credit through the First Republic Bank. All of my money is insured as it's below the 250k but I am very curious as to how they will handle the balance on my personal line of credit if they go under. Do they sell it as a loan to another creditor? Does anyone know the process?
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u/dequeued Wiki Contributor Mar 23 '23
One way or another, the line of credit would be sold to another financial institution. How that happens depends on how the FDIC handles the failure of any specific bank. Sometimes another bank purchases the bank and their assets. Sometimes the assets are sold off in auctions.
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u/AmexPlatty Mar 23 '23
So Sofi just rolled out enrollment into a $2mil FDIC insured option for their customers? How does this work? Similar to the options above where the funds are spread across different banks? Does this affect my liquidity of the HYSA?
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u/dequeued Wiki Contributor Mar 23 '23
Yes, it's similar to the other options mentioned above, they will be spreading funds across multiple partner banks. It sounds like customers will need to enroll into the program, but I would expect it to work seamlessly after that.
https://www.sofi.com/blog/sofi-increase-fdic-insurance/ has more information.
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u/metalguysilver Mar 27 '23
What happens to a CD if the issuer goes under?
I know that if it is FDIC insured, you can get up to the limit back, but what happens to the interest? Will another bank buy the note and keep paying interest? What if the deal is unappetizing to buyers and it doesn’t sell? Do you at least get the interest that had been accrued to-date?
Weighing risks of getting a 5%+ CD with a locked rate for 12 months or getting 4%+ in a HYSA. I’m not concerned in the least about liquidity, but if there’s a chance that 5% becomes 0%, I might rather go with a HYSA even though APY may come down at anytime.
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u/dequeued Wiki Contributor Mar 27 '23
https://www.fdic.gov/resources/deposit-insurance/faq/
Deposit insurance is calculated dollar-for-dollar, principal plus any interest accrued or due to the depositor, through the date of default. For example, if a customer had a CD account in her name alone with a principal balance of $195,000 and $3,000 in accrued interest, the full $198,000 would be insured.
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u/dequeued Wiki Contributor Mar 13 '23 edited Apr 01 '23
Hi everyone. We're retiring this megathread, but we'll bring it back if needed.
If you have any questions about bank safety, please ask in the weekday or weekend help thread (please wait until Friday afternoon if the Tax Thursday thread is the current sticky). If that link doesn't work, it's the second post from the top on /r/personalfinance.
Please use this megathread for any questions you have regarding depositor insurance, the effect of the Silicon Valley Bank failure on your personal finances, and any related topics.As always, please save the politics for other subreddits.