Is My Money Safe in the Bank During a Depression?

It’s rare for consumer money to actually be at risk with a depositor bank. In addition to the fact that the FDIC is usually successful when it attempts to sell a failing bank, two factors serve to protect your money most of the time:

Inherent stability. While this is no legal guarantee, it is uncommon for consumer banks to fail and go out of business. This stability has several sources.

In part, this is because banks have gotten larger and more liquid in recent generations. This liquidity means that banks have more money on hand to protect against downturns. They also have fewer liabilities due to securitization and financial products. (Securitized products don’t always provide financial stability, but they do help consumers by moving risks away from consumer banks and into investment banks.)

In other part this is due to banking regulations passed in the wake of the Great Depression. While Congress weakened banking laws in the late 90’s and early 2000’s, banks still have strict regulations about using depositor funds to invest in securities and financial products.

Together, this means that banks don’t fail very often. Although it’s critical to understand that not often absolutely does not mean never. While uncommon, banks absolutely do periodically fail.

Insurance. Again, there is no legal guarantee here. However many banks have insurance or other protection that covers their depositors in case of failure. This is not a certainty, but in case your bank does fail it may have protection.

Funds in Excess of FDIC Protections 

If you have more than $250,000 on deposit and are worried about your bank failing, you have two best options:

Spread money around. You can put your money into multiple institutions if you’re concerned about a single bank failing.

Remember, you receive up to $250,000 in protection per banking institution. By depositing your money with multiple banks, you both lower the risk of any single institution failing and get another basket of protection for each new account. While this may incur some fees, the costs are likely to be minimal as most banks offer extremely attractive products for six-figure deposits.

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Diversify into investments. Investment products have an asymmetric risk profile to banks. While they can lose their value, you can’t lose your stocks or bonds just because your brokerage goes out of business. Even if your investment bank fails you still own your portfolio.

If you’re worried about banks failing, you can begin looking at safer investments as a place to put your money. Assets like Treasury bonds tend to do quite well during recessions for exactly this reason. They may not give a significant return, but you know you’ll get your money back.

Bottom Line

The FDIC protects consumers if their banks fail by insuring your money, whether in a savings account or a checking account, up to a quarter-million dollars. If that’s not quite enough protection for you, there are other ways to secure your money too.

Investment Tips During a Recession

• A financial advisor can help you make the right investment choices regardless of the market conditions. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

• The appropriate asset allocation is critical during a recession. Use SmartAsset’s free asset allocation calculator to make sure your portfolio aligns with your goals and risk tolerance.

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