How Banks Work

The SVB Situation and Your Financial Picture BA Schrock Financial Group

Banks typically have 10% of their deposits in reserve for when people or institutions make withdrawals. The rest is lent out, which is what grants you the interest rate you receive on your savings accounts, for example. Historically, this balance works well, but when people lose faith in their banks, more people request withdrawals amounting to more than the 10% available, putting pressure on the bank and in some cases, causing bank failures.

Banking Insurance

The good news is your funds are often covered under FDIC insurance. Banks pay a premium to the FDIC to cover bank accounts of up to $250,000 per account. If the whole banking sector experiences bank runs and the FDIC can’t cover insured amounts, the Federal government usually steps in to support the FDIC as well.

If you have bank accounts covered by the FDIC of under $250,000 (or $500,000 for a jointly owned account with your spouse), your money is legally insured from a potential bank failure.

IRAs, trusts, and other accounts are also subject to limits on coverage amounts. However, the Electronic Deposit Insurance Estimator (EDIE) from the FDIC can simplify the process of checking if your deposits are eligible for government deposit insurance.

Other Forms of Financial Insurance

It’s important to note that deposit insurance doesn’t protect all financial products. Only certain ones such as checking accounts, savings accounts, money market accounts, certificates of deposit (CD’s), cashier’s checks, and money orders are covered. Stocks, bonds, mutual funds, Treasury securities, life insurance, annuities, and items held in safe deposit boxes are not included in deposit insurance coverage.

If you use your bank’s brokerage service to buy mutual funds and the brokerage fails, you won’t be protected by federal deposit insurance. However, the SIPC (Securities Investor Protection Corporation) offers insurance protection for investors and may supply up to $500,000 in coverage for your brokerage account if your broker fails. However, the SIPC does not cover speculative losses such as a decrease in the value of equity you own in stocks, for example.

The Most Important Aspect: Your Funds

Several factors such as your account type and balance may affect the level of protection your money receives. In most cases, keeping your money in the bank is a secure option, even during times of economic hardship. Nonetheless, if you have questions or concerns about your exposure to potential fallout from recent events, please reach out and we’ll schedule a call right away to help answer your questions and concerns.


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