So it’s understandable that one blog reader wrote in to ask us whether her deposits are safe in a bank or credit union, given the new concept of bank “bail ins.”
Many failing financial institutions were “bailed out” by taxpayers during the financial crisis. While the taxpayers got all their money back (and then some), Congress – and their European counterparts – were concerned that the “too big to fail” doctrine was creating unsafe banking conditions.
So instead of a “bail out,” they came up with the idea of using a “bail in” process. Instead of being bailed out by taxpayers, failing banks would be “bailed in” by their own creditors and depositors.
Before you grab your money and run for the hills, realize that’s not as scary as it sounds.
Your insured deposits, whether at a bank or a credit union, would not ever be used for a bail-in, even if the bank failed.
That’s because your insured deposits are protected for up to $250,000 by the Federal Deposit Insurance Corporation (FDIC).
A bail-in could use depositor funds to rescue the bank only if those deposits exceeded the FDIC insured amount.
Federally insured credit unions are just as safe as FDIC-insured banks, and rely on National Credit Union Share Insurance Fund (NCUSIF) insurance protection, which provides the same $250,000 insurance.
So, in answer to the reader’s question, “yes, your money is safe at the bank or credit union” assuming you are covered by FDIC or NCUSIF insurance protection for the full amount on deposit.
A bank failure is an unlikely event, but to be prudent, you should respect the FDIC insurance limits and not exceed them.
Take a moment to make sure that your accounts are covered and that you’re below the maximum insured amounts. If you keep more than $250,000 on deposit, spread the funds among different insured banks or across different account titles. That’s easy to do now through one brokerage account, using short-term CDs from different financial institutions.