How Safe Are FDIC-Insured Bank Deposits?

How safe are bank deposits insured by the FDIC? The answer is open to debate.

Furthermore, I'm not an expert on it. But I believe that FDIC-insured deposits are safe under almost all circumstances.

Some Reasons FDIC-Insured Deposits Are Reasonably Safe

Some basics about how the U.S. banking system operates are discussed on FDIC webpages, including information about the FDIC insuring individual deposits up to $250,000 in member banks.

While the money directly available immediately to the FDIC to pay depositors isn't enough to cover all potential losses if every FDIC-insured bank failed at once, such a catastrophe is unlikely.

Furthermore, if large-scale bank closings happened, more money could be appropriated by Congress.

But perhaps much more important is that in most scenarios, when a bank with FDIC-protected deposits fails and the government takes over that bank, the bank still has significant assets of various types, even though those assets may be exceeded by liabilities.

Even a failed bank would typically hold some government bonds, some loans that are still being paid on by borrowers, etc. The revenue from these would be expected to be sufficient to pay the $250,000 per depositor.    

Therefore, if a bank fails and the government takes it over, the bank likely has some value. The government may sell the bank to another bank to keep it open.

Even if the bank doesn't reopen, the government likely can sell the bank's remaining assets for enough to pay the up to $250,000 for one account to each depositor that is guaranteed by FDIC insurance.

Indeed, there might be enough revenue from selling bank assets to repay all or the majority of the bank depositors' money that is over $250,000.

In bank failures with FDIC-insured deposits, the small depositors are not likely to suffer losses.

However, larger depositors may lose money. Furthermore, the bank(s)' owners, its stockholders, would almost certainly lose money, maybe all their investment.

The Federal Reserve System

Local banks are served by the Federal Reserve Banks similar to the way local banks serve individuals and businesses. A Federal Reserve Bank of St. Louis article discusses the Federal Reserve Bank system.

Among other things, these Federal Reserve Banks serve to help out local banks when needed in various ways.

Below is a June 20, 2022, photo of an identifying plaque on the Federal Reserve Bank of Chicago building.

These Federal Reserve Banks can provide loans to retail banks to help with liquidity, etc., subject to government regulations. 

Closing Thoughts

It's good to diversify one's assets. Keep some money in cash, some in banks, and some in other forms if reasonably possible.

But depositing up to $250,000 per individual in an account in an FDIC-insured bank is likely one of the safest ways to invest U.S. currency. And most of us, including me, have far less than $250,000 in banks.

However, this article just expresses my opinions. Please don't blame me if my views turn out to be wrong.

Seek information from various sources and seek to make the best decision you can for your own particular situation.

I'm a firm believer that if we seek to put the highest righteous power, God, first that things will work out well.

NOTE:

This article was last revised on March 28, 2023.