The double whammy of the COVID-19 pandemic and its economic shock waves could make anyone feel unsteady. And perhaps that extends to whether you feel safe about keeping your money in a bank.
But as we gain surer footing, both with COVID vaccinations and a renewed economy, you should know that there is no safer place for your money than a bank or credit union – not the proverbial mattress stuffed with cash, not the locked desk drawer in the den and not even the thick-walled safe hidden in the closet. That’s because banks have sophisticated security systems and technologies to protect your money and guard against theft and fraud. What’s more, most bank deposits are insured by an agency of the federal government.
“If your savings are held in a bank, sleep well knowing it’s the safest place your money can be,” says Jeff Jones, head of the department of finance and general business at Missouri State University.
Why Is Your Money Safer in the Bank?
Here are four reasons why bank accounts are super safe:
Most deposits in banks are insured dollar-for-dollar by the Federal Deposit Insurance Corp. This insurance covers your principal and any interest you’re owed through the date of your bank’s default up to $250,000 in combined total balances.
You don’t have to apply for FDIC insurance. This protection is provided automatically when you open an account. The types of accounts that are covered include checking, savings, money market deposit and certificates of deposit.
To find out if your bank is FDIC-insured, you can contact the bank and ask, look for an FDIC sign at the bank’s premises, call the FDIC at 877-275-3342, or look up the bank in the FDIC BankFind directory.
Most deposits in credit union accounts are insured by the National Credit Union Administration, which is also backed by the federal government. As with the FDIC, the NCUA insures individual customers up to $250,000 in total deposits.
After the 2008 financial crisis, the federal government imposed stricter regulations for U.S. banks to help ensure their safety and soundness. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 increased the amount and types of capital that banks must have to help them stay solvent.
Protection from fire, flood or theft.
Cash can be stolen, damaged or destroyed. If you keep cash in your home or car, your homeowners or renters insurance, if you have any, may not cover the full amount due to those types of losses. Money deposited in a bank account isn’t subject to those risks.
“The security precautions and systems of a bank are likely much better than you could replicate at your home,” Jones says, “and if a bank were to be robbed, the bank has insurance to cover those losses.”
So even if you worry about a run on the bank – like that scene in “It’s A Wonderful Life” where panicked depositors try to pull out all of their money, or a modern version where it can be done electronically – remember that your funds are protected by FDIC or NCUA insurance.
What if You Have More Than FDIC Insurance Limits?
The standard FDIC insurance amount is $250,000 per depositor, per FDIC-insured bank, per account ownership category. Examples of ownership categories include a single account, joint account, trust account or corporate account.
You can have more than $250,000 of insured deposits at one bank if your accounts have different ownership categories.
If your deposits in one ownership category exceed $250,000 and you want to ensure that all of your funds are covered by federal insurance, you could open accounts at more than one bank.
You Also Have a Role in Protecting Your Money in the Bank
Though you don’t face any losses from a robber physically stealing cash from your bank, you do need to protect yourself from thieves trying to get at your funds, like the money in your checking account via debit card fraud.
“Debit card transactions usually go through checking accounts, so they’re more vulnerable, especially when your debit card is stolen or skimmed,” says Jones.
A skimmer is an electronic device that can capture card numbers from an ATM or payment card reader.
Since your savings accounts usually aren’t connected directly to your debit card, the funds in savings should be safer from debit card thieves.
Beyond your debit card, you also need to be vigilant about scams such as phishing schemes – don’t click on links in shady emails. In addition, be on the lookout for unfamiliar transactions in your accounts.
Even with the safety of banks, for extraordinary circumstances, some financial advisors recommend that you keep small amounts of cash at home in case of an emergency or natural disaster or if you’re strictly quarantined.
“A reasonable amount is one to two weeks of living expenses,” says Charles H. Thomas III, a certified financial planner and founder of Intrepid Eagle Finance in South Carolina.
You may want to invest in a fire-resistant safe for added protection.