what the experts say about the safety of your money

Despite the financial crisis of 2008, bank failures are considered very rare.

However, the unexpected closings of Silicon Valley Bank and Signature Bank have many consumers worried about their deposits, their bank and the US banking system.

“Every American should feel confident that their deposits will be there if and when they need them,” President Joe Biden said Monday in a speech aimed at allaying fears that the US Federal Reserve, the Federal Deposit Insurance corp. and the US Department of the Treasury moved. quickly to prevent a wider infection.

However, recent events have brought up old questions about how safe your money is in the bank. Here, experts answer what a bank run is, how FDIC insurance works and whether your deposits are still safe.

Because banks take customers’ deposits and invest the funds, that money isn’t always available.

“If everyone wants to withdraw money at the same time, the bank will not have the reserves to do that and they will grow, essentially,” said Tomas Philipson, a professor of public policy studies at the University of Chicago and a former. acting chair of the White House Council of Economic Advisers.

In a moment of panic, customers will literally run to the bank, Philipson explained. Now, that happens electronically. And because electronic transactions are made at high speed, bank runs are faster than ever – in the case of SVB, it’s a mind-boggling 48 hours.

While SVB also has an unusually high percentage of uninsured deposits, there are other midsized banks that may be at risk of large withdrawals.

The short answer is “possible,” according to Stacy Francis, a certified financial planner and president and CEO of Francis Financial in New York. He is also a member of the CNBC Financial Advisor Council.

“This is happening, in part, because of the Federal Reserve’s sharp increase in interest rates,” Francis said.

Banks own long-term bonds that now pay low interest, he said. If the interest that banks earn on these longer-term bonds is lower than the interest they offer to depositors in their savings accounts, less money comes in than they pay out.

In addition, “many banks have seen large withdrawals from depositors seeking money [for higher rates] to make more money,” added Francis. “All this creates stress.”

“You may have a little bit of time without access, but the government has a quick process to get you back to using your money in short order,” said McClanahan, who is also a member of the CNBC Financial Advisor Council. .

However, if you have more than $250,000 in deposits at any one bank, you can contact a private banker at your institution or split it into accounts at different banks, he advised.

“Another alternative is to transfer some to a brokerage account and use mutual funds invested in government-backed securities,” he added. Some Treasury bills, or T-bills, are now paying 5% after a series of rate hikes from the Fed.

“It doesn’t feel like a financial crisis yet,” said Jude Boudreaux, a CFP and senior financial planner at The Planning Center in New Orleans. Boudreaux is also a member of CNBC’s Advisor Council.

“The two banks we’re talking about today specialize in risky assets,” he said, specifically, crypto and tech startups. “The likelihood of this becoming a national wave of bank issues seems low.”

In 2008, irresponsible lending fueled a massive housing bubble and when borrowers defaulted on their loans, the nation’s largest banks were left with trillions of dollars in virtually worthless investments.

Institutions are in a stronger position now because of new rules imposed after the financial crisis, including higher capital requirements and annual stress tests.

Last year, all the biggest banks passed.

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