Uninsured Deposits and the Changing Banking LandscapeBack to home
The collapse of Silicon Valley Bank has heightened people’s awareness of uninsured deposits—deposits that aren’t insured by the FDIC if a bank fails. The limit is usually $250,000, but it can be more in certain situations.
Today I read a Bloomberg article about this topic. It discussed various ways a depositor can increase their FDIC coverage. The main way is to use a service that spreads your cash among accounts at multiple banks. The more banks you spread your deposits across, the more aggregate FDIC insurance you have and the lower your uninsured-depositor risk. The article went on to include a list of players who offer this service. The article is definitely worth a read if uninsured deposit risk is a concern.
The article also subtly mentions that these products offer competitive interest rates as compared to traditional depositor accounts at traditional banks. This is a win for savers that haven’t seen rates on deposit accounts keep up with the Federal Funds Effective Rate. The willingness of depositors to move funds to different institutions and search for higher yields will likely have a bigger impact than many people realize. For the first time in a long time, banks will have to compete for deposits and reward those who save—something we haven’t seen in almost twenty years.