My, what a Banking World!

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Once was a Coin Collector

When I was a mouse-sized human, collecting shiny coins was my gig. You’d have thought I was the owner to some ancient hidden treasure, squirreling away Kennedy half-dollars, Lincoln wheat pennies – you name it! Nope, these coins weren’t hidden gold galleons lost at sea, but boy, they were everything to me!

It was unthinkable, them mingling with my cast aside toys or getting grabbed by my sticky-fingered brothers. No sir. Into my ‘hush-hush’ chest they went. Although, coins and I didn’t last, not after hearing about the recent banking fiasco at Silicon Valley Bank and Signature Bank. It had me, well, reflecting on my coin-collecting past.

Is My Money Just an Illusion?

Turns out, my money isn’t going up in smoke! David Schiff from West Monroe clued me in that if you’ve got your cash stashed in a Federal Deposit Insurance Corporation (FDIC) covered bank and you’re playing by the rules, you’re in the green. No searching for sheep to count tonight!

A bit of a history lesson here: Post the blistering bank closures of the Great Depression, the FDIC flexed its muscles in 1933, and since then it’s kept its promise. Not a single penny of FDIC-covered money has walked away from its owner. How’s that for assurance?

FDIC has you covered up to $250,000 per person, for each account type, and at every FDIC-approved financial institute. How’s that for a safety blanket! Even if the bank falls apart, FDIC says you won’t lose more than $250,000, full stop.

Silicon Valley Bank’s big hiccup? Its tech-rich client base had more than 94% of its U.S. deposits uninsured because they exceeded the $250,000 FDIC limit. It caused quite a rip in the water. But here’s the thing. The U.S. Treasury, hero of the day, decided to throw a safety net over all deposits, not just the insured ones. So even if you had more than a quarter million bucks in there, you’d get it back. Woo!

Now, I’m not swimming in money like Scrooge McDuck, so for ordinary Joes like me, FDIC coverage is all the sleep-aid I need. Even for the richie-rich out there, the government is often the cavalry in times of emergency.

According to Schiff, what happened with Silicon Valley and Signature Bank is akin to spotting Bigfoot in your backyard; rare and somewhat bizarre. You see, real smart banks don’t put all their eggs in one basket. That’s Banking 101! Household names, like Bank of America, aren’t just going to vanish into thin air like a magic trick gone wrong.

Schiff really brought it home when he said that the banking system is like a tough old boot. Only a handful of banks took the fall because of their “chosen” clientele – not a banking epidemic like the 2008 mortgage crisis. Phew!

Joe Maugeri at the CFP Board and yours truly agree: banks make life way easier, what with the safe money storage, direct deposits, and bill payments. I mean, who wants to lug around all their cash or hide it under the mattress, right? Plus, there is always the sneaking suspicion of bandits making off with your loot.

Banks are not just doormen to your safe house. They make sure your money is doing the work for you, thanks to interest. That’s pretty sweet, especially with cheeky inflation nosing around your purchasing power.

By banking, you’re literally protecting yourself from the big, bad inflation wolf. Sure, vanilla checking accounts might not be running the ‘rags to riches’ race, but high-yield savings accounts, money market accounts, and certificates of deposit (otherwise known as our friend CDs) give better rates.

As Ian Rosen, chief revenue officer at Magnifi, aptly put it, “Individuals have more to fear from inflation than bank failures. This is a time when your money really needs to be working for you.” Makes sense, right?

It’s always a good plan to make sure your bank is FDIC-insured and consider giving a lavish vacation to amounts above the $250,000 limit into different investment options. You’ve got to know how to withdraw it too, just in case.

However, generally, you don’t need to run to the bank and yank out all your cash in a frenzy. Mansions can’t be built in a day, and massive withdrawals (so kindly called a “bank run”) can turn to ashes pretty darn quickly. It’s nothing but a destructive hurricane and a totally unnecessary one at that with all the safeguards in place.

With the protection of FDIC, bank runs are like running away from a paper tiger. Me. Scared of losing money? Highly unlikely, according to Maugeri.

The Bottom Line

While the banking sector had a slight hiccup, if your money is tucked away in an FDIC-insured bank and you’ve stacked it in the right qualifying account under $250,000, you’ve got a guard dog on it. Despite the fear of the ghost of recent failures, the government will make up for any loss you may suffer, up to that limit (and, quite often, they even break their own rules to go that extra mile).

Just remember, turning tail from the bank won’t do you any good. In this age of inflation, it’s to your advantage to have your money growing because of the interest earned on your deposits. You surely don’t want to be counted among the poor souls left in the dust when the cost of everything is rocketing upwards.

Let’s not scream ‘fire’ in a crowded theatre, shall we? Keep calm and carry on. As Schiff succinctly puts it, “For consumers, there’s nothing to worry about.”

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