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  • Writer's pictureJay A. Hines

WHAT IF MY BANK FAILS?

In the past couple of weeks our nation dealt with the failure of a couple of banks. These banks possessed the hard-earned money of everyday Americans and small businesses. The problem was that most clients had deposits over the $250K FDIC insured threshold. So, the question is…would my money be better served and safer in a bank or with an investment firm? Let’s examine the situation and explore the differences.

When a bank fails, it means that the bank is unable to meet its financial obligations and is unable to repay its depositors their funds. If you have money deposited in a failed bank, the FDIC (Federal Deposit Insurance Corporation) is responsible for insuring your deposits up to a certain amount.


Hazards of having your money in the bank:

  1. No guaranteed replacement for deposits over $250K.

  2. Bank investment deposits are not FDIC insured.

  3. Low returns: Bank accounts typically offer lower interest rates than other investment options. This means your money may not grow as quickly as it could with other investment options.

  4. Inflation risk: The interest earned on bank accounts may not keep pace with inflation, which can reduce the purchasing power of your money over time.

  5. Opportunity cost: By keeping your money in a ban account, you may miss out on potential investment opportunities that could generate higher returns.

Keep in mind; the FDIC is an independent agency of the U.S. government that provides insurance coverage for deposits at banks and savings associations. The current FDIC insurance limit is $250,000 per depositor, per account ownership category, for each bank where your deposits are held. This means that if you have more than $250,000 deposited in a single account or across multiple accounts in the same ownership category at a single bank…. again, the amount above the insurance limit may not be covered by the FDIC.


If a bank fails and you have deposits that exceed the insurance limit, you may lose some or all of your money. In such cases, the FDIC may act as the receiver of the failed bank and may use its resources to pay insured depositors their funds. The FDIC may also arrange for another institution to assume the deposits of the failed bank. However, there may be a delay in accessing your funds during this process.


It's important to note that bank failures are rare, and most banks are backed by the FDIC, which provides a level of protection for depositors. Nevertheless, it's a good idea to diversify your deposits across multiple institutions and account ownership categories to minimize your risk.

Whether it is better to invest your money or keep it in a bank account depends on your financial goals, risk tolerance, and personal circumstances.


If your primary goal is to preserve your wealth and have easy access to your money, a bank account may be a better option. Bank accounts, such as savings accounts or certificates of deposit (CDs), offer low-risk options to store your money, and you can withdraw your funds at any time without penalty.


On the other hand, if you are willing to take on more risk and potentially earn higher returns, investing in stocks, bonds, real estate, or other assets may be a better option. Investing can help your money grow over time, but it comes with the possibility of losing money as well.


It is important to note that investing should be approached with careful consideration and a long-term strategy. It's always recommended to seek the guidance of a financial professional to determine what approach is best suited for your financial situation and goals.

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