Is My Money Safe? All You Need To Know About FDIC, SIPC, and NCUA Coverage

If you’ve been reading the news in America over the last few days, the headlines might strike a chord. That’s because shades of 2008 are in the air in America, and it’s unfortunately not because there’s a new T-Pain or Alicia Keys song out.

Rather, Americans have been shook awake by high-profile bank failures, echoes of the last financial crisis which have spawned a sense of dread among Americans. The collapse of Silicon Valley Bank and Signature Bank represented the largest bank failures since the 2008 Financial Crisis—and the second and third largest bank failures in U.S. history.

That probably doesn’t inspire confidence, especially for people looking in the rear view mirror. Americans have not just faced the COVID-19 pandemic and sky-high inflation, but have now also seen their 401(K)s take a haircut, are bombarded with the threat of a recession, and are now facing bank drama.

Above all else, Americans are looking for assurances that their money is safe. Thankfully, it probably is—whether in a savings, checking, or brokerage account. However, there are exceptions and things you should know about the financial regulators and institutions which safeguard your money against disaster. Read on to make sure your money stays yours.

Is My Money Safe?

Despite the worries about banks, your money is probably safe. That’s because the U.S. requires banks to insure their deposits, whether in a bank account or a brokerage account. The United States has three federal institutions which insure these deposits, but there are limits for each account type—and some accounts are excluded from these policies.

To better understand whether your money is safe, we’ll break down how this looks at three kinds of financial institutions—banks, credit unions, and broker-dealers (businesses which custody your assets and cash, like the ones we work with at EarlyBird.)

Is My Money Safe at my Bank?

Yes, your money is probably safe at your bank. The majority of Americans with checking and savings accounts have little to fret.

The Federal Deposit Insurance Corporation (FDIC) insures deposits up to $250,000, which means that unless you have money above and beyond that figure, your money would be covered even in the event that your bank shut down.

Even Americans who have stowed away money in certificates of deposit (CDs), money market deposit accounts, money orders, and certain prepaid cards have nothing to fear. The FDIC assures that these products are all insured by the government.

Is My Money Safe at my Credit Union?

Yes, your money is safe at your credit union. Like banks, deposits at credit unions are insured. However, credit unions have their own government institution which insures those deposits.

The National Credit Union Administration is the ‘FDIC for credit unions.’ It insures deposits up to the same about as the FDIC: $250,000.

As a NCUA-specific quirk, deposit accounts that are insured include the usual checking, savings, and money market accounts, plus certificates of deposit (CD), like their bank compatriots. However, the NCUA also includes coverage on Individual Retirement Accounts (IRAs), even though they don’t insure stocks, bonds, or mutual funds.

Is My Money Safe in my Investment Accounts?

Yes, your deposits and holdings are insured. However, the value of those holdings are not. That might sound tricky, so we’ll explain:

If you make a bad investment or your broker makes bad investment advice, you are not insured against that bad decision—that’s your problem and that money is not insured.

However, in the unlikely case that the broker-dealer or agent which custodies your stocks, bonds, ETFs, or other cash goes under, a government institution called the Securities Investor Protection Corporation (SIPC)** will step in.

SIPC insures up to $500,000, with a limit of up to $250,000 for cash. That means that you can rest easy knowing your 401(K), Roth IRA, or brokerage accounts are safe—even if the bank or institution offering them is not.

When you use a platform like EarlyBird, your money is insured through SIPC, via our broker partner, Apex Clearing Corporation. That means that your deposits and assets are protected, even if us or our partner were to close or shutdown.

What Should I Know About Deposit Insurance?

There are three important things you should know about deposit insurance—and not all of this will apply to you:

1. Deposit insurance is per depositor, per account type, per institution.
2. Keep cash or assets below the limit of the insurance at each institution.
3. Alternatives like crypto have no such federal insurance.

Let’s break these three things down in brief:

How Much of My Money Is Protected?

This answer depends on whether your money is a credit union or bank, or whether it’s at a broker-dealer.

That’s because deposit insurance—which is provided by the FDIC and NCUA—is insured ‘per depositor, per account type, per institution.’ In other words, if you were unlucky enough to face troubles at two banks at the same time, these institutions would not prevent you from filing a claim at both banks.

And more importantly, your money is insured account-by-account at each institution, so if you’re insured up to $250,000 on your savings, $250,000 on your checking, and $250,000 on any other covered accounts through FDIC or NCUA member institutions.

On the flip, brokerage accounts are a little different. SIPC determines your protection on “separate capacity,” which means that they’ll insure various account types up to the $500,000 limit.

That means that all your individual accounts will be insured for up to $500,000 per broker, all your joint accounts will be insured for up to $500,000 per broker, all your individual retirement acounts or Roth individual retirement accounts will have $500,000 of insurance, and so on and so forth for all the separate capacities that SIPC recognizes.

How Do I Know If My Money Is Protected?

Generally speaking, most Americans’ money is protected within these limits. However, for the lucky few who have accounts above and beyond the FDIC, NCUA, and SIPC limits, it might pay to consult a financial planner to discuss how to spread your wealth out to avoid calamity, even if the possibility of that happening is very limited.

At least in the case of Silicon Valley Bank, many companies and corporate accounts were above the $250,000 balance—and it’s easy to see why. $250,000 probably wouldn’t even cover an hour of payroll at a large company like Apple or Amazon.

But seeing as though you’re not a company, you’d do well to keep your checking and savings accounts below the $250,000 allowable limit per bank. And for broker-dealers, you’ll want to keep each account capacity below the $500,000 limit.

If you get close to exceeding the insurance limits at a bank or broker-dealer, you might consider opening an alternative account at the same bank or opening a similar account at another institution.

Are my investments in neobanks, fintechs, or alternatives companies (real estate, crypto, etc) considered safe?

If you’re investing in alternatives like real estate, credit, or crypto through a platform, you might have limited protections on your account and its contents. To better understand these, you might need to contact each platform.

Some businesses claim to have account insurance for your cash, crypto, real estate, or other alternatives, but unless the organization claims it has FDIC, NCUA, or SIPC insurance, your money is not federally insured in the case of their failure.

And even in the case that some companies make these claims, they might not be telling a full truth—especially in the crypto business, a number of businesses fraudulently misrepresented having FDIC insurance, which meant their users were wiped out when they filed for bankruptcy.

As with anything, verify before putting large amounts of funds in a platform—and also understand that you are not insured against your own bad decisions, or the bad decisions of a financial planner. When in doubt, consult a financial planner for more information.

What Should I Do If I’m Worried About My Money?

If you’re worried about your money, you might not be alone. In times of financial turbulence, you might be wondering how to keep more of what’s yours.

Thankfully, there’s probably little to fret when it comes to your bank, credit union, or investment accounts. Though there are occasionally bank failures, you are unlikely to face one yourself—and if you have reason to believe you will, you could always change banks. Rest assured, you’ll be insured so long as you bank at an FDIC or NCUA member institution.

As far as the other half of ‘keeping more of what’s yours’ goes, hard times with banks sometimes translates to rocky waters for investments. That’s why we’ve written a little bit about how you can make the most of turbulent markets, which includes some points on how you can build more wealth for yourself and your family, even when the market is down.

At EarlyBird, we focus on one particular part of that wealth-building adventure: building equity in your children. Though investing in your child is a less-considered option, it’s an important one which we encourage families to strongly consider—just a few dollars per month can turn into tens of thousands as your child grows up.

Many Americans have the propensity to build generational wealth—and their odds of doing so are even greater if they invest in their child before they can do so for themselves. Just think: if your parents invested just a few dollars a month while you were a child. That legacy is within reach for many Americans, but they have to start early.

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