Leave Your Money in the Bank – It’s Safe

by Ryan Guina

I went to the bank last Friday to deposit a check and I noticed a couple of the tellers huddling off to the side. The branch manager was walking back and forth between the customer and the tellers and her office, where apparently she was on the phone with someone with more authority than she had. I don’t know all the details, but from what I could gather while waiting in line, the customer wanted to withdraw the contents of his account.

I’m not privy to the details of the transaction and perhaps I shouldn’t have even been paying attention. But my impression was that the customer was withdrawing his cash and closing his account because he was scared of the current economic situation.

But there was no need to worry. The bank was a member of the FDIC and his money was safe.

FDIC Insurance has you covered

The Federal Deposit Insurance Corporation (FDIC) was founded during the Great Depression to keep people form making runs on bank deposits. FDIC insurance protects depositors against the loss of their funds if a bank fails. FDIC insurance is backed by the full faith and credit of the United States government, and since it was established, no depositor has ever lost any FDIC-insured funds.

FDIC insurance covers funds in deposit accounts, including checking and savings accounts, money market deposit accounts and certificates of deposit (CDs). FDIC insurance does not cover other financial products and services that insured banks may offer, such as stocks, bonds, mutual fund shares, life insurance policies, annuities or municipal securities.

FDIC coverage is automatic. Coverage is automatic up to the limits and the banks pay the insurance premiums, not the customers.

New FDIC Insurance Limits

The new FDIC limits took effect October 3rd, 2008 and last through December 31st, 2009, unless they are extended by another bill. The new limit is $250,000 and covers single accounts, IRAs and other retirement accounts, and trust accounts. Joint accounts are covered $250,000 per co-owner. For example, my wife and I could theoretically have $1million in FDIC insured funds in one bank – each with an individual account and a joint account.

To guarantee your entire account is covered, just keep your deposits under the limit. If you need additional coverage, open another account with the same bank, or another bank.

Don’t make a run on the bank – your money is safe

Withdrawing your money out of fear is the wrong thing to do. What the customer may not have realized is that his money was safe and he could be setting up himself or the bank for failure. When you withdraw your money, not only are you not earning interest, but you have no protection for your money. You have no recourse if your money is lost, stolen, or destroyed. Withdrawing money from the banks also reduces their amount of deposited funds. This limits the amount of money banks are able to lend, which is how they stay in business. One person withdrawing their funds won’t hurt a bank, but hundreds of account closures in a short period can.

Is your bank covered? Most banks in the US are covered by the FDIC, and if yours isn’t covered, I would recommend finding one that is. To find out if your bank is covered, contact your bank or use the FDIC insured bank search.

From CNN.

Published or updated February 27, 2011.
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{ 8 comments… read them below or add one }

1 Donny Gamble

This is a very important post that we all need to read. Don’t take your money out of the bank or your retirement account. If you do, you will be losing out on possible the greatest sale of the century. Everything so cheap right now, that if you invest more money now, your investment will probably sky rocket within the next 30 years. Stocks are at the level where people feel that every company in the world is going to file for bankruptcy. Never going to happen.


2 Dividend Growth Investor

I totally agree that as long as you have under $250K in an FDIC bank you shouldn’t take the money out. Why?

Because the risk of you losing all money outside the bank is much larger than the risk of losing the money if the bank fails. What if someone followed you on your way home.:-(

And yes, everything is cheap right now.. But today the market has started to correct things..


3 LiveWellSimply

When I found out about the $16 billion that people yanked from WAMU causing it to go down in flames, I was amazed and somewhat amused. Why go through all the trouble of transferring your money to a new bank which could just as easily disappear and which is also FDIC insured? These are crazy times alright.


4 Kristen

Didn’t these people watch “It’s a Wonderful Life?” But in all seriousness, I’m glad you addressed this topic. Panicking is the worst thing we can do.

There is a similar thing happening in England. People are withdrawing their money and putting them into Irish banks because Ireland has promised to insure a higher amount of money than the British banks. Our problems (with housing too) are being mirrored over there from what I’ve heard on the BBC.


5 Ryan

LWS and Kristen: You both bring up good points. There is no need for people to make a run on banks – the money is covered. But doing that could have bad effects and bring down banks. Thankfully, we haven’t seen too much of this – mostly just isolated cases.


6 fathersez

Our bank deposits used to be insured to RM60,000 only (about 17,000 USD or so). Recently the Malaysian Government announced that they would g’tee 100%. (so has the Singaporean Gov’t).

I think this is a reaction to maintain financial stability after seeing some serious withdrawals happening.

After all even the biggest bank will fall if enough withdrawals happen.


7 John

in the great depression people were told to leave their money in the bank. many didn’t and many did. the ones that left it in lost it all!


8 Ryan

John: The FDIC was not around at the time, so if banks folded, the money went with it. Now the money in FDIC member banks is guaranteed up to $250,000 per account. Of course, you could still lose purchasing power from inflation or the US currency could lose it’s value, but that is another story. 😉


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