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  • Writer's pictureBridget Sullivan Mermel CFP(R) CPA

Banks Fail 2023 | FDIC Insurance Explained

If you're worried about what the Silicon Valley Bank and Signature Bank's recent closings, you'll want to understand exactly what money that you have that might be at risk. In this episode, we cover why you might be worried, and if you are worried what you can do about it.

The FDIC insures bank deposits. When banks collapse, the FDIC insurance kicks in. It's important to know when a bank fails how much you are insured for.

Also, it's important to understand basic strategies to implement if you have more money in banks than the FDIC insures--what you can do about it.

00:00 Welcome

02:25 Basic FDIC

08:20 Businesses

10:22 Strategies

Here's the FDIC insurance calculator that we mention in the episode:

Here's a video we did about investing in CDs and Treasuries through brokerage accounts:

John's firm website:

For advisors around the US:

Thanks for watching and please subscribe!


Bridget: Banks are in crisis. Should you be worried? Are you worried? If you are, in this episode of Friends Talk Financial Planning, we're going to be talking about what we're telling clients about a) should you be worried? and b) if you should be worried, what potential strategies there are for you to alleviate your worries. Hi, I'm Bridget Sullivan Mermel, and I own a fee-only financial planning practice in Chicago, Illinois.

John: And I'm John Scherer. I have a fee-only financial planning practice in Middleton, Wisconsin. And before we start talking about how to keep your money safe at the bank, I want to remind people to hit that subscribe button. That helps other people find this useful information on YouTube. So hit subscribe and then let's get into it, Bridget. There’s a lot of talk in the news with the failure of two major banks. And it makes people a little bit nervous, and in some cases rightfully so, but in some cases, maybe we don't need to be quite so worried, right?

Bridget: Absolutely. People want their money to be safe. I think that's the key element. And so, we want to talk about how to make sure your money is safe. What are you telling your clients, John?

John: I love that. We want our money to be safe. And maybe just a brief background on the problem. If you're not in tune with it, people are saying, “Hey, I put money in the bank, I got savings, I got checking, I got CDs. I expect that when I go to take my money out, I can get it.” And the concern is, “What if I can't get that out? What if the bank literally doesn’t have the money to give me?” That's the problem we're talking about here. It reminds me of the movie It's a Wonderful Life. Of course, people aren't walking into their bank looking for cash dollars, but it's that same type of thing here in 2023.

So that's why folks are worried if you're not in tune with what's going on. The next question is: “Hey, there are a couple of banks that have had a hard time and failed to provide money. Is my bank safe?” That's what I'm hearing from folks. Pick the local credit union, pick the big national bank. People are asking, “Is it safe for do I need to be worried about that?” One of the things that I tell people is that everybody's heard of FDIC insurance, right? You see the little sticker when you go into the bank or these other things: FDIC insured.

One of the things that people don't have to worry about is that if you have less than $250,000 in the bank, when I say in the bank I mean checking, money market, CDs, all those things put together. Up to $250,000 is protected at your bank. So for a lot of people, I go, “Listen, there're reasons why people have more than that, but if you don't have that much, your money is protected by the federal government, by that insurance at the bank.

Bridget: That's such a great point. That’s how the FDIC insurance works, but I want to drill down a little bit and get a little bit more specific on the $250,000 maximum. So if I've got five accounts at your bank: I've got my savings account, my emergency fund, my saving for my trip to Tahiti account, I've got my saving for my new electric car account…

John: a regular checking account to pay bills with.

Bridget: Exactly how does the $250,000 work? Does each account get up to $250,000?

John: Super question.

Bridget: And then I've also got a joint account with my husband and individual accounts just with my name on them. What about those?

John: Yeah, right, all these things and you go, “Okay, well, it's $250,000. That's simple.” Well, no, it's not quite that simple. And so, here's sort of how that thing works in the big picture.

Bridget: It is simple for the vast, vast majority of people who don't have $250,000 in bank. In researching this, I've seen that the average bank balance is $5,000. So most people do not need to worry.

John: Right. The situation you described, let's dig into that a little bit. I've got all these different accounts. If they all add up to less than $250,000, who cares? There's nothing to worry about. So for many, many people you go, “Listen, this is just not an issue. You can just forget about this and move on.” But there are some folks for whom this does matter. We've got a client right now, who inherited money and ended up with more than $250,000 in the bank. Or for some business, as we'll talk about, where they have to spend money.

Or there are places where you go, “Hey, I got more than this.” That's the place you need to be concerned about. And specifically, how does it work? The rule says that it's protected for $250,000 per person per institution. And so, note that it doesn't say in there any place per account; it's per person per institution. So let's say that I have a million dollars in the bank in someplace. If I have that, I can protect $250,000.

It doesn't matter if it's in one account or in ten different accounts. It's that bank. So then to have more protection, I need to have it at a different bank. So if I have $250,000 here and $250,000 there, both of those are protected at different banks. If it’s $250,000 in two different accounts at the same bank, you're capped at that $250,000 limit.

Bridget: Okay. What about joint accounts? Let's say my husband and I bank at the same account. Is it $250,000 for him, $250,000 for me, and $250,000 for a joint account?

John: On a joint account, it's still per person. So if you and your husband have one account, you have a $500,000 joint account. Then you're covered there.

Bridget: Okay, so it is $500,000 for my husband and me at one bank, right?

John: Right. A lot of clients will have a living trust account for estate planning purposes. If you have a living trust account, it is sort of interesting, so it's per person, and if you have a joint account, then it counts as two; you have to double that limit. There’s, however, a caveat for people to be aware of. If you have a living trust—it is really common for your bank statement to have the living trust name on it—it's not the depositor, it's the beneficiary of that account that counts. So what does that mean? All right, you and your husband have a joint account, a joint account with $500,000 of coverage.

My wife and I have a living trust account, and then we take a look and say, “Who's the beneficiaries of that living trust account?” And we happen to have two children, so it would be the two kids. We get $250,000 for each of the two kids, so it’s a $500,000 limit. If my wife and I have one child and that child is the beneficiary, when we're gone, the money goes to her. That one child is only protected for $250,000, even though the two of us opened it up. It goes the other direction. If we had four children and we put our living trust money in there, we've got $250,000 for each of the four kids who are beneficiaries.

Thus, we might have a million dollars of coverage with our one living trust account at that one bank. So when you have a living trust that's just sort of a sideline, a little bit of a different look at things; it's the beneficiaries who are key. And you don't think about these things. You go, “Hey, I know this rule. It's $250,000. My wife and I have $250,000 each, so we got $500,000 of coverage.” You go, “Wait a minute! If you only have one kid and it's in your living trust, you don't have $500,000 of coverage, at least potentially.”

And there's a neat calculator on the FDIC website, and we can put it a link in the show notes, but you can put in who owns this account and how much is it, which bank, and it'll tell you what's protected and what's not. So there's a really handy way where you can go in there and ask, “I own this one. We own that one. Our living trust owns that one. Who are the beneficiaries?” It takes about five minutes to plug the numbers in, and you go, “Oh, here's the thing.” And again, I'll just want to circle back and say that if you have less than $250,000 in the bank total, this conversation doesn't apply to you. Don't worry about it. You don’t have to think about that stuff, despite what's on the news.

Bridget: Right. Absolutely. So what about businesses?

John: I was just going to say that😊

Bridget: So I own a business. How does that affect me?

John: Yeah, there's a couple of things when it comes to businesses. There's one if it's an incorporated business or it's a legal entity. And there's another if I'm a sole proprietor, and I just happen to run a business. And in tax terms, that sole proprietor shows up on your personal tax return; the business is one of those folders in there, one of those schedules in there. So if I'm an individual, I fix lawnmowers on the side, I've got a business, I'm making some money, it shows up on my tax return—my personal tax return—that is subject to that $250,000, it's subject to my personal deposits, right.

So I've got money in the bank for myself and I’ve got a separate account for a handyman fix it job. Those two things are added together. You don't get double coverage for that. So that's just $250,000. For an incorporated business, a legal entity, if that legal entity, Sullivan Mermel Inc. or Trinity Financial Planning LLC, opens up an account at the bank, that entity has $250,000 of coverage. So if you and I are partners in the business, we don't get double the coverage, our business gets $250,000 of coverage. And again, these are big numbers we're talking about, but if I'm running a business and I've got 50 employees, that might be a payroll run for us.

I don't know if I'll have time to talk about what happened in the banking crisis, but you go, “Why would you keep that much money at one bank?” Well, if I'm a business, I get $250,000 of protection, and I might need $2 million in the bank to cover all my payroll and all the things that I rent and all those things that go on. It's just a different scale than someone personally having more than 250,000 in the bank, and then saying, “Okay, let's split it up between banks or do something different like buying a treasury bill.”

Bridget: Right. So speaking of treasury bills, let's transition into that topic. Okay. Let's assume that you are concerned about this, but you really don't want to be checking your bank balances to see how much you have in there all the time to make sure that you’re not worried about the FDIC limits, because you have better things to do, quite frankly. You want to set it up so that you know you're under the limit. And so, let's talk about other ways to make sure that you have government insurance so that you know that your money is safe.

John: Yeah, you bet. I mean that’s one of the reasons I mentioned treasury bills. And it's different than what we often talk about in the past. It's not setting up a cash flow bond ladder sort of thing. This is just a deposit account, and treasury bills are literally backed by the treasury. Right. The US. Government is the institution that does the FDIC insurance, Federal Deposit Insurance. This is the same funding company as when you buy a treasury bill. It's backed by the promise that the government is going to pay you that money back.

There is a limit on treasury bills; you can buy only up to $10 million. So if you have more than that you got to be careful. But these conversations go, “Listen, I inherited money and I've got money in different banks, and I've got to keep track of this” or “I run a business. I've got things.” You could put a million dollars into one treasury bill that lasts just 30 days. Recently rates for those are up 4% or better on an annualized basis. Hey, I can get a good return on a one-month treasury bill and have it be fully protected separate from anything I've got in the bank. So that's one thing that we've been looking at for folks.

Bridget: Well, and you might know you’re not going to need this money for X amount of time, or you don't even want to think about this money for three months, six months. It's going to be a while.

John: Yeah, I got a big chunk of money that I would put in a CD but golly, having that for my next house purchase is going to put me over the FDIC limit. Hey, a treasury bill could be a reasonable solution for that.

Bridget: And you can hold treasury bills at treasury direct if you want to go directly to the source, or you can hold them in custodian accounts like Schwab so it can be part of Schwab that is directly insured by the government. Also, to bring up another wrinkle. If you bought CDs at Schwab, that CD would be part of the $250,000 limit at whatever bank it's at.

John: Right. So you can do it at one place, like through Schwab, and buy different CDs that are actually held at different banks and increase that FDIC protection.

Bridget: Absolutely. Okay, great. So I think this gives our viewers a lot to chew on with how to feel safe and how to understand what the limits are, and it provides some resources, too. If you're concerned about this, here's a website to check it out. With that, I’m Bridget Sullivan Mermel, and I've got a fee-only financial planning practice in Chicago, Illinois.

John: And I'm John Scherer, and I run a fee-only financial planning practice in Middleton, Wisconsin. Both Bridget and I are members of the Alliance of Comprehensive Planners. If you like what you hear on our show, you can check out to find an advisor in your area. And don't forget to hit that subscribe button.

At Sullivan Mermel, Inc., we are fee-only financial planners located in Chicago, Illinois serving clients in Chicago and throughout the nation. We meet both in-person in our Chicago office and virtually through video conferencing and secure file transfer.

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