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Crisis Q&A: How Safe is Your Bank Account? Will the FDIC Hold?

how safe is fdic insurance

Dave Kansas

Updated March 6, 2009 12:01 a.m. ET

Q: How safe is the money in my bank account?

A: Very safe. The Federal Deposit Insurance Corp. funded by member banks, insures cash deposits up to $250,000. While the FDIC is levying new fees to rebuild its depleted insurance fund, the government will backstop the FDIC in case it runs short of cash. The FDIC already has a $30 billion credit line and Congress may even extend that credit line.

In reality, the FDIC, despite its current financial challenges, is backed by the government. The possibility of the government allowing the FDIC to fail seems vanishingly remote. Insurance of cash deposits began in the Great Depression and since that time bank runs have become a relic of the past.

Q: How healthy is the FDIC?

A: The FDIC's bank member-funded insurance fund is lower than it should be, which is why the FDIC is working to raise more money. More than two dozen banks have already failed this year and more failures are expected. Without more funds, the FDIC will run out of insurance money. But as noted above, the government already has a credit line arrangement with the FDIC that will likely be expanded. In other words, despite the FDIC's precarious finances, it is essentially guaranteed by the government.

How's Your Money?

Crisis Q&A answers the most pressing questions about the current financial crisis. Its goal is to serve readers with quality information that's relevant to their day-to-day lives.

Have pressing questions for which you'd like an answer? Submit them here .

Q: How does the U.S. have so much money for bailouts and an FDIC guarantee, too? Doesn't the money run out at some point?

A: In theory, the government could print as much money as it requires to fund all the various bailouts and guarantees it has offered. Since money is not based on something tangible, such as gold, it just requires more ink and paper. But printing too much money could lead to inflation, a severely weakened currency or both.

For that reason, the government tries to keep the size

of its commitments (the budget and other spending) and its resources (taxes) in some semblance of balance, financing the difference – the budget deficit – by selling Treasurys. The appetite for Treasurys – especially from other nations, such as China – remains healthy, despite the widening deficits. The size and sustainability of that appetite, however, is something that economists and other analysts are watching with a nervous eye.

Q: What if my insurance company fails? Do I have similar protections as cash deposit insurance?

A: Yes, you have similar protections for your specific insurance policies, but these policies are administered state-by-state. Each state has a guaranty fund that would protect individual policyholders in the case of an insurance company failure. You should check your state insurance commissioner's home page to get more details about the guaranty program.

Related Reading

  • Bill Seeks $500 Billion for FDIC Fund


Q: Should I continue to contribute to my 401(k)?

A: It depends on what your immediate financial situation looks like. It is important to save for retirement, so you should continue to do so, unless some financial emergency requires that you divert that money to an immediate need. Many companies still pay a "match" of some kind, which means free money, always a nice thing.

It's vital to understand, however, that most 401(k) programs offer non-stock alternatives, such as annuities, Treasurys or corporate bond investments. While stock prices have fallen dramatically, meaning that their valuations are better today than a few months ago, you may want to reconsider the mix of assets in your 401(k). Adding to your non-stock holdings might provide you with some peace of mind in these tumultuous times.

A: Thrift is the new black and everyone is saving furiously. The savings rate rose to 5% in January, the highest level since 1995. A good rule of thumb is to have savings that would cover six months of expenses, which is something that most people are building toward. That kind of rainy day fund would provide a decent cushion in case of a lost job or some other financial surprise.

Category: Insurance

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