News headlines about market volatility might cause heartburn and sleepless nights, and it’s hard not to worry about your own finances. You might find yourself asking if you should take your money out of your bank.
Numerous personal scenarios would be valid reasons to withdraw your money. (Think: combining your finances with a partner or using your savings to make a large, essential purchase.) But it’s highly unlikely that you’ll experience losing your money because your bank is going out of business. Why?
The answer: the FDIC.
What is the FDIC?
The FDIC (Federal Deposit Insurance Corporation) is an agency created by the 1933 Banking Act that was designed to restore trust in the American banking system and protect consumers’ bank deposits. The FDIC was created after the stock market crash of 1929 to protect and insure a person’s money up to a certain amount — even if the bank itself couldn’t cover the withdrawal.
Today, this independent agency of the U.S. government continues to protect your deposits at an FDIC-insured bank or savings association — even in the unlikely event that your bank closes. And the best news? No depositor has ever lost a penny of their FDIC-insured funds.
What does FDIC insurance protect?
Money in an FDIC-insured bank, like Ally Bank, is protected on a per depositor and per ownership category basis up to $250,000 (including principle and accrued interest). FDIC insurance covers deposits such as Interest Checking, Online Savings, Money Market Accounts, and Certificates of Deposit (CDs). Learn more about the full range of deposit products and insurance coverage amounts.
If your account balance is below the $250,000 threshold and you have your money in one of these types of accounts, you are protected — even in the highly unlikely scenario of your bank closing.
How to Increase Your Amount of FDIC Insurance
The FDIC caps coverage at $250,000 per depositor, per ownership category. If your balance exceeds this limit, you may be asking yourself should I withdraw the excess and stash the cash elsewhere? Rest assured, there are ways to significantly expand your insurance protection and maximize your coverage.
Here are a few ways to maximize your coverage:
- Spread the wealth by opening additional single-name accounts at different FDIC-insured banks. For example, if you open an account at three different institutions, you could have up to $750,000 in FDIC insurance coverage.
- Open a joint account with your spouse, which would double the amount covered.
- Start saving for college now by opening a Coverdell Education Savings Account (or Education IRA), which is FDIC-insured as an Irrevocable Trust.
- Save for retirement by stashing your cash in an IRA CD or IRA savings account.
This combination of strategies and accounts could provide you with up to an additional $1.25 million in coverage. Learn more about how to estimate your insurance coverage and enhance your deposit protection.
But what about your investment accounts?
As you know, investing in the stock market comes with risk. But even securities have some protection, thanks to the Securities Investor Protection Corporation (SIPC).
The SIPC is a nonprofit corporation that protects investors against losses if their brokerage fails. It was created as part of the Securities Investor Protection Act of 1970, after the U.S. security market instability of the late 1960s.
You can learn more about the difference between FDIC and SIPC, how you can protect the money in your brokerage or retirement accounts, and the limits of SIPC here.
Check in with your finances.
Economic downturns can be stressful to live through. But many financial institutions like Ally Bank have your back, thanks to FDIC insurance.
Instead, to calm your nerves, conduct a financial health check, and start by ensuring that your funds are FDIC-protected. There may be a valid reason to withdraw your money, but burying it in a hole in your backyard should not be one of them.