The recent failures of Silicon Valley Bank and Signature Bank have many Americans concerned about the economy and the safety of their money. Although the government has stepped in to contain the damage caused by the bank failures and ensure account holders can access their funds, inflation and interest rates remain high, so the threat of a recession persists.

Generally, money kept in a bank account is safe—even during a recession. However, depending on factors such as your balance amount and the type of account, your money might not be completely protected. For instance, Silicon Valley Bank likely had billions of dollars in uninsured deposits at the time of its collapse.

Fortunately, there are things you can do to increase the security of the money you have in the bank.

Is My Money Safe in the Bank?

To start with, understand that your money is not physically in the bank. As soon as your bank receives a deposit, it gives that money to someone else in the form of a loan. By law, banks must hang on to some money, but it’s not much.

Capital requirements vary by institution, but according to the Federal Reserve, it’s around 10% for many big banks. That means 90% of the money your account statement says is at the bank is actually somewhere else, like with an auto dealership that sold a car to someone who borrowed funds from your bank.

The bank takes deposits, makes loans and collects loan payments to replenish its coffers. Meanwhile, its 10% capital reserve supplies cash to people who close their accounts or make withdrawals. As long as there isn’t a run on the bank, there won’t be any problems.

Historically, however, there have been times when people have lost faith in a bank or the whole banking system, and they’ve lined up in droves to demand their money. Bank runs can lead to the collapse of a bank that can’t cover the requested withdrawals.

Will My Bank Go Bust?

Bank runs can be scary, but they don’t always signal economic instability. A typical year sees at least a handful of bank failures, according to the Federal Deposit Insurance Corporation, which insures depositors against losses in the event of a bank failure. There were no failures among the nearly 4,800 institutions the FDIC insured in 2021 or 2022, but that changed in March 2023, when the run on Silicon Valley Bank led to the second-largest bank failure in U.S. history.

For credit unions, which are insured by the National Credit Union Administration (NCUA), recent years have been rockier. In 2021, nine institutions closed or were placed into conservatorship, followed by seven in 2022. So far in 2023, two credit unions have met similar fates. Still, with around 5,000 credit unions operating, that’s no cause for alarm.

The good times may not last, particularly if recent recession predictions are correct. Since 2001, 562 FDIC-insured banks have gone under. Most failed during the Great Recession years of 2009 and 2010.

What Happens When a Bank Fails?

Ordinarily, when a bank fails, the FDIC steps in to cover any losses and arrange for another institution to take over. Customers of the old bank may not even notice a change until their bank suddenly starts going by a new name.

However, the FDIC itself can run short if numerous banks fail at once, which happened during the last recession. That’s because its fund to cover deposits, which is generated from insurance premiums paid by banks, is far less than the sum of its actual deposits. Consider that as of December 2022, the FDIC deposit insurance fund contained $128 billion, while the total deposits the FDIC insured amounted to more than $10 trillion.

That’s not as ominous as it may sound. Following the collapse of Silicon Valley Bank, this fund was sufficient for the FDIC to guarantee all depositors—even those with balances above FDIC insurance limits—access to their full account balance. FDIC insurance is also backed by the full faith and credit of the U.S. government, which typically steps in if the FDIC is overwhelmed and provides the funds necessary to bail out banks.

Identity Theft and Bank Safety

FDIC insurance doesn’t cover losses due to theft, including fraud and identity theft. And it’s somewhat concerning that identity theft involving bank fraud has ratcheted up in recent years. 

In the last quarter of 2022, the Federal Trade Commission received 35,534 reports of identity theft involving bank fraud, up from 31,475 in the last quarter of 2021. But the majority of those reports from Q4 involved new accounts opened by fraudsters, meaning there was no direct impact on funds already on deposit.

In a typical year, credit card fraud is the most significant form of identity theft consumers face. But, according to a report from the FTC, the majority of identity theft cases in 2022 involved credit card fraud.

Most identity theft doesn’t involve individual bank accounts or cause losses to individual customers. Unless you lose your credit card and fail to report it, there’s usually no loss to individual cardholders when credit card fraud occurs. And government benefits fraud doesn’t affect individuals directly either.

How to Secure Money in Your Bank Account

Money in the bank might not feel safe as it used to. But there are moves you can make to increase the safety of your funds.

First, only keep your money with institutions insured by the FDIC or NCUA. Nearly all U.S. banks and credit unions participate, and many highlight deposit protection in their marketing materials. Look for the logo of the respective insurance programs, or just ask a teller.

You also want to avoid depositing too much money. Federal deposit insurance covers a maximum of $250,000 per owner of an account. That suggests you should keep only $250,000 at a bank, but it’s more complicated than that.

A married couple who jointly owns an account can deposit up to $500,000 and still be fully insured. Similar coverage caps apply to IRAs, trusts and other accounts. It can get somewhat complicated, but the FDIC’s Electronic Deposit Insurance Estimator (EDIE) makes it easy to determine whether your deposits qualify for government deposit insurance.

If you have more than $250,000 on hand, it might be wise to spread your funds across multiple banks, as to avoid exceeding the FDIC’s threshold. Or you may consider opening a cash management account, as CMAs often provide FDIC coverage beyond federal limits.

Limitations of Deposit Insurance

Another key consideration is that deposit insurance only covers certain financial products, including checking accounts, savings accounts, money market accounts, certificates of deposit, cashier’s checks and money orders. Deposit insurance does not cover stocks, bonds, mutual funds, Treasury securities, life insurance, annuities or the contents of safe deposit boxes.

If you use your bank’s brokerage firm to buy mutual funds and the firm goes under, you aren’t covered by federal deposit insurance. However, the Securities Investor Protection Corporation, a service similar to the FDIC for investors, may step in with up to $500,000 in coverage for your brokerage account in the event your broker fails.

While federal deposit insurance only comes into play when a bank fails, many banks purchase private insurance to protect against less drastic losses due to robberies, cybercrime and identity theft. Banks don’t advertise this as much as FDIC insurance, so you may have to ask if your bank offers it.

Keep in mind that private insurance only protects the bank, not individual bank customers. But many banks with the coverage have a policy of making customers whole if they are victims of cybercrime, including identity theft.

How Safe Is a Bank Against Identity Theft ?

Banks use a wide and increasing array of tools to limit identity theft losses. From artificial intelligence programs that can spot indicators of fraudulent activity on an account to databases of false identities commonly used by criminals, banks steadily expand their arsenal of weapons in the battle against cybercrooks. Biometric identifiers, such as retinal and fingerprint scans, and two-factor authentication that requires users to enter a code sent to a phone or email address also help.

Banks are doing better lately, although they’re still far from perfect. A 2021 study by the AITE Group forecast that identity theft losses to all businesses would drop from $721.3 billion in 2020 to $623.2 billion in 2022. But that was before a massive amount of identity theft related to government pandemic benefits swelled the figures. According to the report, losses are now on track to increase slightly to $635.4 billion by the end of 2023.

Financial institutions absorb most identity theft losses without impacting customers. So the odds are good that you won’t lose money even if you’re the victim of identity theft. And if you take a few modest precautions, you can reduce your risk even further and sleep soundly, knowing your money in the bank is almost certainly safe—during a recession and during good times.