And that makes three. As of today (May 4th, 2023) anyway.
What am I talking about? Failed banks.
When you look at the list of failed banks on the FDIC website, there was an onslaught of failures in the 2010-2019 period and then it paused. As we’re in 2023 and a rapidly changing interest rate and market environment, failures are picking up speed again.
While it’s important to understand why these failures happen, that's not the focus of this writing. You need to understand what YOU need to do if you’re staring down the barrel of a failing bank.
1. Diversify your banks and accounts
Consolidation is a wonderful simplification in life except when it doesn’t work. When you have multiple banks and multiple accounts for different reasons, it can get complicated to keep track of everything. As you have consolidated that down to one bank – in this case a smaller, regional bank – it can be great, but you also open you up to some unintended risks.
If your regional bank is one that is (or has been) in the headlines, I would open other accounts at a large, national bank. While it’s not nice to hear, these large banks are seen as “too big to fail” and will have more government intervention if they find themselves in trouble than with smaller banks.
Be prepared to move your online bill pay and standing instructions to a new bank even though it can be a hassle. Making sure your ability to pay bills remains uninterrupted will provide some peace of mind as your existing bank may be going through some turmoil.
2. Move your savings to an online bank
If you haven’t already, moving your long-term savings / Emergency Fund to an online-only bank is a good move. If you decide to keep your everyday checking in a traditional bank, you often won’t find attractive savings rates at these banks, specifically the larger, national banks.
As you move to an online bank for longer-term savings, you receive higher interest rates with less fees, balance requirements are less stringent, and you still have the FDIC protection offered at the traditional banks.
3. Be sure you're adhering to FDIC limits
Speaking of FDIC limits, you need to be aware of how you’re accounts are titled as this will determine what FDIC protection you are eligible for.
FDIC insurance is offered for each owner of a bank account in the amount of $250,000 per bank. For example, if you have a bank account by yourself, then you’ll be insured for $250,000 on that account. If you have a joint account with someone, then the coverage will be $250,000 for each person. If the account holds $500,000, then the account is fully insured. You can have multiple accounts at the same bank that are titled differently (single, joint, retirement, trust) and if your attributable portion in each account is under $250,000, you’ll receive full FDIC coverage.
Getting money from the FDIC should your bank fail is a relatively quick process – up to a week. However, it’s easier to receive funds from the FDIC if you have a bank account at another bank – see point 1 – as they can ACH the funds over to your alternate account.
If you’re finding your bank is in the news and you’re worried about it failing, the first step is to open an account at another larger, nationally based bank. From there, you can decide to what money to move and if you want to open an account at an online bank as well for your longer-term savings. If you have any questions as to your situation, please let me know.