How You Can Protect Your Money in the Wake of Banking Collapses
The collapse of Signature Bank and Silicon Valley Bank in early March left many feeling uneasy. While the Federal Deposit Insurance Corporation decided to cover all of the depositors in full, it’s not always a guaranteed response.
So, how can you make sure your money is protected if another collapse occurs? Use these six tips.
1. Don’t Panic
When the news headlines say that the second- and third-largest bank collapses in history just occurred, it’s easy to worry your bank may be next. It’s best, however, to try and stay calm.
“Avoid making impulsive financial decisions, such as withdrawing all your money from the bank,” says Ryan McCarty, certified financial planner and advisor at Castle Rock Investment Company.
If everyone panics it can cause a bank run, which turns fear into an actual problem.
2. Research Your Bank’s Solvency
A bank fails or collapses when it’s no longer able to meet its obligations to depositors and other parties. This happens when its assets fall below the market value of its liabilities. To reduce the risk that your money will be in a bank that collapses, you can research and monitor its solvency.
“Monitor your accounts and your bank’s financial health,” McCarty says. “Sign up for alerts or notifications from your bank so that you can be alerted to any unusual activity or changes to your account. You can also contact them directly to discuss your concerns and any steps they are taking to address them,” he adds.
Additionally, financial reports on FDIC-insured banks are available through the FDIC’s BankFind Suite tool.
3. Ensure Your Bank Is Insured
The Federal Deposit Insurance Corporation and the National Credit Union Administration supply deposit insurance to bank and credit union depositors. If a bank or credit union collapses, each depositor is covered for up to $250,000.
If your bank or credit union isn’t FDIC- or NCUA-insured, however, you won’t have that guarantee, so make sure your funds are at an institution covered by deposit insurance.
4. Don’t Exit the Markets
When banks collapse and the stock markets tumble, it’s natural to get worried. Don’t make rash decisions that will end up costing you in the long run.
“We know when we hear negative news, it will affect the broader stock market. It’s important to resist the knee-jerk reaction of getting out of the markets – what you’re effectively doing is selling low. The key is to stay committed to your overall investment strategy,” says John Anderson, CFP at Equitable Advisors LLC.
5. Don’t Exceed the FDIC Limit at Any One Bank
It’s also important to think about diversifying your risk.
“If you have deposits of less than $250,000, those funds are protected by the FDIC – you are good from that standpoint. What becomes more problematic is when individuals have more than that,” Anderson says.
“While most of us will be OK, those who have more or for business accounts where there must be a fair amount of cash on hand, one way to mitigate your risk a little bit is to not have all of your money in one bank,” Anderson says.