Your financial accounts are safe, experts say. Here’s what protects them

When banks collapse, it’s natural to feel some financial anxiety and wonder if your money is secure.

Executives from the two banks that failed in March faced scrutiny in a hearing Tuesday, where members of the Senate Banking Committee chastised them for risky moves and lack of diligence, while still paying themselves generously.

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“To most Americans, a lack of Wall Street accountability tracks with their entire experience with our economy. Workers face consequences; executives ride off into the sunset,” said Sen. Sherrod Brown, D-Ohio.

Unlike 2008, when Americans watched traders tearfully toting their belongings out of a failed Lehman Brothers, consumer protections are stronger now. Yet if we add the failures of Silicon Valley and Signature banks to the looming debt ceiling collision that threatens to push the U.S. into a potential recession, the current uncertainty can be “really scary” for people, said Reena Aggarwal, professor of finance and director of the Georgetown Psaros Center for Financial Markets and Policy.

“I do think it’s a moment where people have to work harder to attain financial health and financial security” as opposed to the past when, for many Americans, a single full-time job could provide that security, said Lisa Servon, professor of city planning at the University of Pennsylvania.

“People are experiencing a new level of financial precarity with very little savings, very little security in terms of their jobs and benefits,” while facing higher costs for housing, higher education and child care, Servon said.

So, how safe are your accounts? According to experts, for the vast majority of people who have money in financial institutions in this country, the answer is: Safe. Very, very safe.

PBS NewsHour asked financial experts if it matters exactly where those accounts are, and how investments are a whole different story.

How are my personal accounts protected?

Most banks are insured by the government’s Federal Deposit Insurance Corporation, or FDIC, Servon said. That insurance covers up to $250,000 per customer, and $500,000 for joint accounts. That means that if a bank loses its customers’ money, the federal government will reimburse it.

Most Americans have less money than that in their accounts, but that limit is supposed to cover all the money an individual uses at one bank, said Michelle Singletary, personal finance columnist for The Washington Post.

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If a small business has more than that, Singletary said, it might be time for business owners to sit down with their bankers and talk about a good plan. Owners might decide to spread that money across different FDIC-insured institutions, which would help keep those funds safe should any one institution find itself in trouble, she added.

If you’re worried, talk to your bank or credit union, Singletary suggested. They can help you figure out if you need to make any changes. But, for just about everyone, there’s nothing to fear, she said.

“Nobody’s ever lost money in a FDIC-insured bank. Never,” Singletary said.

Does it matter where I keep my money? Is a ‘big four’ bank safer than a small, local bank? Should I use a credit union?

The bank failures over the past few months have tended to be among smaller banks, Servon said. But if you’re worried about losing your money at a small bank versus a larger one, lay those fears to rest.

All three experts said as long as your institution is federally insured, your money (up to $250,000 per account) is safe, whether it’s in a Capital One account, the local bank on Main Street or a national credit union.

That’s not to say that all financial institutions are created equal. Servon said that in nearly all cases, she recommends people try credit unions. Instead of customers, credit unions have members. They function just like a bank in most ways, but often are more accessible with lower fees and minimum balances, Servon said. She noted they also tend to take fewer risks with money because unlike banks, they aren’t focused on profit.

While banks are backed by the FDIC, credit unions have a similar agency insuring their money: the National Credit Union Administration. Like the FDIC, the NCUA insures depositors’ accounts up to $250,000 per titled account, the experts said.

If you are looking to move your money, it’s worth evaluating financial institutions on the length of time they’ve been in a community and their record of service, Servon said. She also recommended people look into smaller, local banks and credit unions as a way of circulating their money back within their own communities.

“Those are things that are really about people’s values more than really their money. But I think more and more people are thinking about where they put their money and what the institution is doing with it,” Servon said.

So my deposits are safe. But what about my retirement accounts and other investments?

In the short term, they’re definitely more likely to be affected by the shaky national and global financial situation than the cash in your bank accounts, Aggarwal said.

“Investing of any kind is risky,” she said. “Risk and return go hand in hand.”

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Stock prices may dip as interest rates increase, she said, and investment markets are notorious for wavering among uncertainty. Though the government has never defaulted on its debts, the political back and forth also contributes to potential volatility.

“My message to investors would be, don’t worry about the market day to day. Think of it as long-term. Investing is about the long run. And speculation is about the short run,” Aggarwal said.

Investment accounts are protected from fraud by or failure of an insured brokerage firm under the Securities Investor Protection Act of 1970, Singletary said, but that doesn’t cover regular losses or bad advice. The SIPC will insure up to $500,000, which includes up to $250,000 in cash, per account; in some cases, investors may be reimbursed for more.

Retirement accounts are subject to the same ups and downs that investments can experience, Aggarwal said. Regardless, she always advises people, especially young people with time to weather the cycles of bull and bear markets, to set any extra money aside for investments or retirement accounts. Older folks nearing retirement age or who’ve already hit that milestone may be more conservative with their investing.

Don’t try to time the market, she said, because it can be a crapshoot, and you could end up buying high and selling low. Instead, if you’re looking for higher yields but are anxious about investing in potentially volatile funds, you might consider a money market or certificate of deposit account. Both are insured by the FDIC or NCUA the way savings and checking accounts are, but they often have higher interest rates than those accounts.

Whatever you choose, she strongly encourages people — especially young people — to invest early, even if it’s a small amount, and take advantage of compounding interest. But take heart that all three experts feel confident that the vast majority of money for the vast majority of people is safe.

“I think things will settle down in a few months. That’s not to say that the markets won’t go up and the markets won’t go down,” Aggarwal said.

“But the trend line is the markets go up over long periods of time.”