Ask a Nerd: How Does SVB’s Closure Affect Me?

Silicon Valley Bank — a California-based bank that largely catered to technology, venture capital and startup-focused customers — made news as it swiftly collapsed, creating great concern over the billions of dollars it held in deposits.

The bank was insured by the Federal Deposit Insurance Corp., and on Monday, the FDIC took over SVB’s operations so customers wouldn’t lose their funds, even those above the insurable limit. These customers, some of which were businesses that needed to be able to pay their employees, have likely been spared from financial catastrophe. 

The FDIC is working to resolve things for SVB’s customers, but you may still be wondering what you should do if your bank fails in the future. Another bank, New York-based Signature Bank, also recently collapsed and was bailed out by the FDIC, so banks failing in the future could be a reality, though generally unlikely. Here are some common questions that have come out of SVB’s collapse. 

How does FDIC insurance work?

FDIC insurance protects your funds in case your FDIC-insured bank fails. It typically covers up to $250,000 per depositor per institution for each ownership category — such as single accounts, joint accounts and trust accounts — so if your bank balance is $250,000 or less, your money will be returned to you no matter what happens to the bank. If your balance is over $250,000, however, there are other ways to guarantee your money is fully protected.

How do I ensure all of my funds are insured?

At the bottom of your bank’s website, it will say “member FDIC” or show the FDIC logo if your bank is federally insured. You can also check the FDIC bank search tool to confirm whether your bank is covered. If you keep your money at a credit union, your funds will be insured through the National Credit Union Administration, or NCUA, and the coverage is typically the same. 

Is my money safe in the bank? 

Yes. If your bank or credit union is federally insured, your money will be protected. In the case of Silicon Valley Bank, the FDIC said on Monday it “transferred all the deposits, both insured and uninsured, of Silicon Valley Bank to Silicon Valley Bank, N.A., a full-service 'bridge bank' that will be operated by the FDIC.” Even if you had more than the federally insured $250,000 amount in your account, your funds will be protected. 

A “bridge bank” is meant to “bridge” the operational gap between when a bank fails and when the FDIC can “stabilize the institution and implement an orderly resolution.” 

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What if I don’t get a paycheck?

There shouldn’t be an issue with payroll from SVB accounts or those from Signature Bank. 

“All customers who had deposits in these banks can rest assured they’ll be protected and they’ll have access to their money as of today,” President Joe Biden said in a Monday press conference. “That includes small businesses across the country that bank there and need to make payroll, pay their bills and stay open for business.” 

How can I cover my expenses if my bank fails?

It’s important to know how to manage your expenses in case you lose access to your bank account. 

Plan ahead. Consider spreading out your emergency fund at multiple banks so that if one account is temporarily unavailable, you still have money to pay your bills. It could also be helpful to keep some cash at home in a safe place. 

Figure out your essential payments. If you suddenly lose access to your money, you will need to figure out how to pay your most important expenses. For your rent or mortgage and utilities, contact your landlord, lender or service provider. They may be able to connect you with a hardship program to keep you afloat. If you’re having trouble paying for food, you may need to stretch what’s in your pantry or see what services are available in your area. 

What if my payment apps are connected to SVB and they won't work?

If you have another bank account that you can connect to your payment app, such as Venmo or Cash App, then link the new account information to your profile as a preferred payment method. As a last resort, you can also link a credit card to your app profile, but this option comes with a 3% credit card fee. 

Bank failures are rare and the FDIC is typically able to protect customers, but it can still be a jarring experience to have your bank suddenly shut down. Having a backup plan is always a smart idea when it comes to managing your finances.