FDIC Insurance & Protecting Your Accounts: Insured vs. Uninsured Deposits
How Do You Know if Your Money is Insured?
How do you ensure your money is as safe when a bank collapses? Why is diversification key in your banking portfolio?
In an industry where 47% of deposits are uninsured and recent failures like Silicon Valley Bank have shaken confidence, we discuss the important role of the FDIC in monitoring, auditing, and even deciding the future of banks.
We talk about the different account types, from joint to trust accounts, and the changes in trust law that might affect your coverage.
Key Topics:
Using the EDIE calculator to determine the insurance on your accounts.
Coverage limits for various account types.
The creation and role of FDIC.
Links mentioned in the show:
To find out your FDIC coverage, use the EDIE calculator - https://edie.fdic.gov/calculator.html
Watch the Me Financial Podcast on YouTube.
Time Stamps
03:41 Arizona banks focus on real estate lending.
06:50 Banking industry changing with quick money movement. FDIC essential?
11:13 Minimum $15M with ownership restrictions by FDIC.
14:04 Starting a business takes a lot of cash.
19:19 Consolidate bank accounts for insurance flexibility.
21:22 Interbank lending facility for short-term cash needs.
24:45 Savings accounts struggle to keep up with inflation.
28:29 Different organization, same insurance, not covering CDs.
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Michelle Moses [00:00:04]:
Welcome to Me Financial, the podcast designed to inspire your financial life. Hello everyone, and welcome to the Me Financial podcast. I am Michelle Moses, your host. I am a certified financial planner, realtor, and a former ecommerce store owner. And today, I am here with Andy Woodward. He has been on my podcast for now. This will be the 3rd time. Welcome, Andy.
Andy Woodward [00:00:28]:
Thank you. Glad to be back.
Michelle Moses [00:00:29]:
Thank you. I always enjoy our conversations, and we are going to be talking about banking and the ways you can keep your deposits safe. Mostly, we're going be talking about the FDIC, how it came to be and, again, how you can keep your deposit safe because of what happened last year. So we're going kind of explain what happened and the changes that the banking industry is making because of that. So as a little intro for Andy, he's on the advisory board of the Gainey Business Bank in Scottsdale, Arizona, and he's worked in the banking and banking off and on for more than 30 years. His main job is an information technology consultant, and he's worked in arrays of capacities in banking in in the banking industry. Let me trip over my words a little bit more there, Andy. No worries.
Andy Woodward [00:01:13]:
You got it. You got there in the end.
Michelle Moses [00:01:15]:
I did get there in the end. So yes. And here we go right into the FDIC. I know this is riveting for a lot of people. But I do think that it's really important that we talk about this because, from what I was reading yesterday, 47% of of deposits in banks are uninsured. And to me, that is a huge red flag. And I understand that some of it is uninsured for reasons because it's a transactional account. You know, money's going in and out a lot on a daily basis.
Michelle Moses [00:01:47]:
But I do think that this is a very important topic because if there's that many people that have uninsured deposits, they need to know how to get themselves insured.
Andy Woodward [00:01:55]:
Yeah. Well, the other thing is is you gotta look a little bit deeper into that number. For example, during the issues with Silicon Valley Bank, which leads to a lot of this discussion, There were companies like Roku, for example, that had $487,000,000 in Silicon Valley Bank, of which approximately 250,000 was insured under conventional insurance.
Andy Woodward [00:02:22]:
So numbers like that can really skew the uninsured deposit numbers.
Michelle Moses [00:02:27]:
And that's what I was reading about was that 90% of their deposits were uninsured.
Michelle Moses [00:02:33]:
And the issue became that it was concentrated in 1 industry. And because it was concentrated in 1 industry, and so that's kind of what they're looking at now is, you know, how much do you have uninsured? Because banks kind of depend on having uninsured deposits. And then why and then making sure that it's not in one industry. So I found that very, very interesting.
Andy Woodward [00:02:57]:
Yeah. You know, just a little background in banks and the FDIC is the FDIC doesn't just insure banks. In order for a bank to become a chartered bank, the FDIC needs to approve their overall plan, including the plan for how they wanna diversify their portfolio and lending, whether they have 50% in real estate, 25% in capital and improvements, and then, you know, a myriad of other loans, that actually needs to be approved by the FDIC, and they actually monitor this on a quarterly basis.
Michelle Moses [00:03:33]:
And so when bank sets out and when they're actually chartered, I mean, they have goals for different industries that they're targeting, I guess. Okay.
Andy Woodward [00:03:41]:
You know, in Arizona, for example, you can't really expect to be an effective bank without having a portion of your lending going towards real estate, whether it's commercial or residential. It's just we're such a real estate driven economy here, where in Silicon Valley, where Silicon Valley Bank predominantly at work, you know, you can't be there without having a significant percentage of your investments in technology. But it's that overall portfolio mix that the FDIC looks at when they're assessing risk in the
Michelle Moses [00:04:15]:
Because that'll keep you safe and keep the runoff is which is exactly what I just mentioned. Yeah.
Andy Woodward [00:04:20]:
Exactly. But, you know, at the end of the day, the the FDIC wants to make sure that they're not going to be in the hole for a significant amount. They're an insurance company. They wanna make sure that they're not going to be responsible for a significant amount of losses, and the way to do that is to stay on top of it in the first place.
Michelle Moses [00:04:39]:
Yeah. And they even go in and do like tours of the bank, you know, I mean, they go in and they do inspections,
Andy Woodward [00:04:47]:
they regularly are audited. And that was the other interesting thing about like Silicon Valley Bank. It was the FDIC that made the decision with them as well as Signature Bank and the other banks in trouble at the same time. They're the ones that decided, nope, you're no longer a bank, and pulled their charter and then actually did the plan for cleaning up the assets and moving them over to other more healthy financial institutions.
Michelle Moses [00:05:15]:
Yeah. Because they were so concentrated in one industry, and they had such a high percentage of uninsured deposits.
Andy Woodward [00:05:21]:
Well, not only that. I think one of the big issues with Silicon Valley Bank was the what's called mark to market of their bonds. They had a significant number of long term bonds and, you know, those bonds were at about 2 a half percent and they were 2 10 year bonds that they had intended to actually wait until those bonds had matured. So they were what's called hold to maturity. And what happened is then
Michelle Moses [00:05:52]:
interest rates
Andy Woodward [00:05:53]:
go to 5% on the 10 year instead of 2 a half percent. And then in what's called mark to market. So oversimplification here with a bond, let's say a 10 year bond at 2 and a half percent for $1,000, you're actually seeing the discount on that, which is $780 when it's 2a half percent.
Andy Woodward [00:06:17]:
Well, that same bond, when interest rates went to 5%, if you remember, there was an inverse relationship between the value of the bond and interest rates. So as interest rates go up, the value of the bond goes down. So that same bond went from $7.80 down to $6.10 So you're talking a 20% drop in their assets. And then at the same time, people looking around going, hey,
Michelle Moses [00:06:41]:
I could get more over
Andy Woodward [00:06:42]:
the year. Banks that are willing to pay 4%, I'm going withdraw my money and move it over, another institution. Yeah.
Michelle Moses [00:06:50]:
And that was another thing that the banking institute that I was, that I've been reading about for the, you know, for in preparation for this was the, in the the high that people can just move money so quickly between banks. Yeah. And how much that's affecting the banking industry. So it's just really interesting of how they're kind of changing. But, let's back up a little bit with the FDIC and what you were saying about, getting the charter. So would a bank, could a bank be a bank without the FDIC?
Andy Woodward [00:07:21]:
No. I mean, there's credit unions. There's
Michelle Moses [00:07:24]:
Right. But they have their own insurance.
Andy Woodward [00:07:26]:
Right. And brokerages firms have their own insurance, and they're very similar in the coverages that they have, but you pretty much need to fall into one of those three lanes. There isn't
Michelle Moses [00:07:36]:
There's no other lanes. Okay.
Andy Woodward [00:07:38]:
Getting a bank without it.
Michelle Moses [00:07:39]:
And the FDIC, came about, you know, after the stock market crash in, 1929. And it was created in 19 33, I believe, somewhere around in there. And, it was really interesting fact that no bank has been I guess nobody has, there has always been insured, and all banks have been saved since then. So it really does work.
Andy Woodward [00:08:01]:
Well, nobody's, they've had a 100% payout on insured deposits Right. Since they started in 1933. One thing I couldn't find was, how much was lost in uninsured Mhmm. Deposits in that time frame.
Michelle Moses [00:08:20]:
I can imagine it's 1,000,000, but I don't know.
Andy Woodward [00:08:23]:
I don't know. Like, even in the case of Silicon Valley Bank, they actually managed to pull that all together and get it all parted out so that nobody lost any money, insured or otherwise.
Michelle Moses [00:08:34]:
Right. And then to replenish the fund, they are the the insurance fund through that in case everybody was wanting to know.
Andy Woodward [00:08:51]:
Well, yeah. I mean, it it's like any other insurance. Yeah. Banks have to pay a premium in order to have that insurance across the deposit accounts, and that's assessed based upon, you know, the the deposits and things like that. And like you said, you know, that some banks actually got a pretty sweet deal out of getting Yeah.
Michelle Moses [00:09:11]:
They really did.
Andy Woodward [00:09:11]:
Getting clean deposits from,
Michelle Moses [00:09:15]:
from
Andy Woodward [00:09:15]:
the carding out of
Michelle Moses [00:09:16]:
this bank. Guaranteed by the government. I mean, it's kinda like buying treasuries at 5.4% right now, or they're not that today. But, you know, it's kind of a sweet deal. So yeah. Okay. So back to the FDIC. So you are very interested that the FDIC does more than just this insurance.
Michelle Moses [00:09:32]:
So do you wanna touch upon that too?
Andy Woodward [00:09:33]:
You know, they actually, because they do insure the banks, they're the ones that decide whether or not the bank gets to be a bank. And then throughout the life cycle of it, banks have to report on a quarterly basis. And actually, if you wanna look up these things, there's a organization called the Federal Financial Institution Examination Council.
Michelle Moses [00:09:57]:
Sounds very government y.
Andy Woodward [00:09:58]:
F f I e y. FFIEC. Yes. All these things are very exciting, and you can actually pull what are called call reports on each individual bank. They're publicly accessible.
Michelle Moses [00:10:06]:
How long does it take a bank to become a bank?
Andy Woodward [00:10:10]:
In the case of, Gainey, it was almost, 2 years.
Michelle Moses [00:10:14]:
Really? A
Andy Woodward [00:10:15]:
lot of it. There's at least a year worth of regulation. New banks aren't really formed all that often anymore. You know?
Michelle Moses [00:10:23]:
It's all about acquiring.
Andy Woodward [00:10:24]:
It used well, it used to be they were formed all the time. And I forget what the number is in Arizona. We have we have actually pretty small number of banks here considering the size of the population that I believe at the time we started on, Gainey, there were 16 community banks in the state. And, you know, to put it in perspective
Michelle Moses [00:10:45]:
not very many.
Andy Woodward [00:10:46]:
There's about 40 in Utah.
Andy Woodward [00:10:50]:
But there were only in 2023 and 2022 when we got our charter, there were only about 20 banks formed that year across the entire country.
Michelle Moses [00:10:59]:
And so why does it take so long? Do you have to raise a certain amount of money before you okay. And that does it have to be, what am I trying to say? Like, across industries, like, what they were talking about? So you've gotta have, like, a small portion of
Andy Woodward [00:11:11]:
It has to be diverse.
Andy Woodward [00:11:13]:
So, you need a minimum of $15,000,000, and they discourage anybody from owning more than 9.9 percent of the bank. Okay. So that $15,000,000 needs to be distributed across 11 or more people minimum. And then if you're above 10% ownership, you actually need to be vetted by the FDIC. And you'd be surprised, like, even going through board membership board member approval for the actual legal board, you know, they turn down anybody that's had a short sale and things like
Andy Woodward [00:11:54]:
And they actually
Michelle Moses [00:11:55]:
They want responsible people.
Andy Woodward [00:11:57]:
Right. They actually really look closely at this. So, that's the reason why, you know, they discourage ownership beyond 9.9%. And so they're, you you know, even going through this process, there were a lot of people going, $15,000,000? That's no big deal. You know? That or I'll just write you a check right now. And, no, the FDIC doesn't like that.
Michelle Moses [00:12:20]:
They want yeah. They want it to come from multiple people. They want you to build your business like you would build a business. Right. I mean, that makes more sense than being dependent on one person.
Andy Woodward [00:12:28]:
Right. And that but they also approve have to approve the lending plan. So what percentage of the deposits are going to be lent out and what the ratio is as far as where that goes.
Andy Woodward [00:12:42]:
And going through the approval for gaining business bank, they didn't really they they actually because there's so few banks going through the process right now, they were very involved. So they make sure that everything is lined up to start with even before going through
Michelle Moses [00:13:01]:
the process of it. Okay.
Andy Woodward [00:13:02]:
And it really does take quite a while.
Michelle Moses [00:13:04]:
So you're basically kind of applying to raise money and then there's a whole process of while you're raising the money and then you get the charter for the bank?
Andy Woodward [00:13:12]:
So the money actually, the investment money initially goes into escrow. So once you get over that 15,000,000 dollars then you can apply to break escrow, in which case you can then start signing
Michelle Moses [00:13:25]:
So it's like buying a property or something.
Andy Woodward [00:13:27]:
So you can then sign leases on on,
Michelle Moses [00:13:31]:
A building.
Andy Woodward [00:13:31]:
The building and things like that and hire people and, what have you.
Michelle Moses [00:13:36]:
Okay. And so do you how I've assumed that this pay this cost a lot of money to do this. Jackie, are you paying the FDIC fees as you're going along in this?
Andy Woodward [00:13:47]:
I don't know what the fees are. I wasn't involved on that.
Michelle Moses [00:13:49]:
Oh, I'd be interested in knowing that. Okay.
Andy Woodward [00:13:51]:
But I would assume I would assume there that is the case. Uh-huh. It's certainly it's probably about a1000000 and a half dollars in order to get set up as a bank because, you know, there's a lot of things that actually
Michelle Moses [00:14:04]:
Well, yeah. You gotta pay a lot of lawyers to write a lot of things up. And, I mean, it's kinda like starting any other business or a fund, you know, an alternative asset fund or something. It just takes a lot of cash to get going. Okay. Well, let's are you okay if we shift gears a little bit? Because I wanted to shift gears on, the how to keep your deposit safe because I've gotten this question, especially from the older crowd, you know, people that downsize, they start to have a lot of cash, you know, they're going into retirement, and they wanna make sure. And I wanna talk about there is a tool online, you guys, and it's called EDIE, e d I e, the electronic deposit insurance estimator. We're going be full of all of these little
Andy Woodward [00:14:46]:
Yeah. They're full, aren't they?
Michelle Moses [00:14:47]:
Very, very interesting and riveting, whatever you call what do you call those? Acronyms? Acronyms. Yes. So it's eddie.fdic.gov. And if you go on there, it's a really simple tool. You can just type in whether you've got an IRA or a trust. And I think we need to touch on that too. We'll touch on how when you have a trust, you can get more than the $250,000 of insurance. So I think most of us know, that with banking, when you have a deposit, you or when you have an account, you are insured up to $250,000 for each of the per each of the, owners of the account.
Michelle Moses [00:15:26]:
So if you've got a joint account with 2 people on it, you would be insured up to $500,000 for that account. And so that's what we're talking about when we say insured deposits or uninsured deposits. When you're up over and you're at 501, that $1,000 is not insured, but your 500,000 in that joint account would be insured. So I think it's really important that you know this, on your we know when you're going to bank, which amount is insured because if something does happen, it happens quick. Yeah. You know? And so you're you're not going have time to be moving all of your stuff around.
Andy Woodward [00:16:00]:
And what you're talking about there is what's referred to another exciting term, separate capacity. So what you have in FDIC insurance, and this applies to credit unions and, brokerage accounts under the SIPC as well, they all pretty much have uniformity on this. Separate capacity includes things like single accounts, joint accounts that you mentioned, whether it's a retirement account, a trust account, a business account, each one of those separate capacities have their own coverages.
Michelle Moses [00:16:35]:
Right. And I think what to simplify it, we could say just separate accounts or separate people
Andy Woodward [00:16:40]:
on those. Not really separate accounts. It used to be an it used to be that, you you know, and it was really a misunderstanding because it's not the case that somebody would just go ahead and say, well, if I've got $1,000,000, I'll just open 4 separate accounts. But that's not the case. If they're 4 separate single accounts, you're only covered for 250,000 total. But if you, for example, have an individual account and then you have a joint account with your husband, that's 750,000. Trust. Right.
Michelle Moses [00:17:14]:
Then it's
Andy Woodward [00:17:14]:
a million. Yeah. Same thing with a 1,000,000,000 or not a 1,000,000,000. A business account.
Andy Woodward [00:17:20]:
XO's doing that.
Michelle Moses [00:17:21]:
No, that's okay. But if it's an LLC, because when I was doing it, I did my LLC, and it was just for 250.
Andy Woodward [00:17:27]:
Right. Yeah. Because that's considered one entity.
Michelle Moses [00:17:30]:
It's one entity. Yeah. So let's get into the trust too, because the trust is really interesting. So they actually just changed this law, and you can actually go up to 5 beneficiaries now, which is $1,250,000. And this is based upon the beneficiaries of the revocable or the irrevocable trust. So if you go to the bank and you, put your and if you have a trust, you basically need to make sure that all of your checking accounts are in the name of that trust in order for you to quote unquote fund the trust. And that is based in then your insurance is based upon the beneficiaries, that you have. And so I think that's where it might get a little fishy, and you wanna make sure that you're covered.
Michelle Moses [00:18:13]:
But it is a way to get more insurance rather than 2.50. The other way to get more insurance, and I thought this was really interesting is that some banks will offer, like, if they've got a huge deposit. So let's say you've got a $2,000,000 deposit, and that bank really wants your deposit. Banks will get together, and they will jointly, insure it. So it's almost like you can have your account in the one bank, but then it is spread your insurance is spread across different banks.
Andy Woodward [00:18:43]:
Yeah. Like, WindTrust has a product called Max Safe, where they can spread it across 15 community banks. There's a handful of products out there now.
Michelle Moses [00:18:54]:
That that do that. Right. And I hadn't seen a whole lot of it, but, I'm not in the banking industry. So No.
Andy Woodward [00:19:00]:
There's another thing called CDARS, CDARS. I forget what the acronym stands for. But it's a similar situation for certificate of deposits that allows the big I think this is primarily the bigger institutions where they're able to spread the certificate of deposit load across multiple banks as well.
Michelle Moses [00:19:19]:
Yeah. So and I I know that all banks would offer that, but, you know, there are organizations that they can join to where you could say that you're not having to go from bank to bank to bank and have all of these because we all know how fun that is, to have all that paperwork and all these logins, that you could have your money in one bank account and then get the insurance from multiple different institutions. Yeah. Yeah. So there are solutions out there. I just think that you just need to be aware so that you're not, you know, caught. I mean, because you could, technically, I mean, if we had a lot of bank failures, I I could definitely see where people wouldn't be as lucky as what happened with
Andy Woodward [00:19:57]:
Well, and that is
Michelle Moses [00:19:57]:
the Silicon Valley.
Andy Woodward [00:19:58]:
That is the point of the FDIC. And one of the reasons why this is so boring is because our banking system is considered safe and secure, and it's largely because of the FDIC and their actual policies. It's one of those things that you can sleep at night knowing that your deposits are safe.
Andy Woodward [00:20:18]:
You know, it's it's it put into place in order to avoid runs on the bank where everybody thinks, oh, I'm going lose their money, which happened during the depression, so they pull their money out, keep it in their mattress instead.
Michelle Moses [00:20:31]:
Right. Versus now we have insurance and everybody pays into that.
Andy Woodward [00:20:36]:
Right. It's the actual reliability of the banking system itself. And it's one of those things that's it's pretty rare globally in that how well it works and
Andy Woodward [00:20:46]:
It's got a long track record of success, almost a 100 years.
Michelle Moses [00:20:48]:
I know. It's it's a really long time. So there was another thing I wanna ask you about that I found really interesting was that the banks, the Federal Reserve's discount window. So when deposits outflows exceed, I guess, their reasonable expectations, they were trying to avoid banks tightening credit because we all know that that doesn't that sends everybody into a panic when we tighten credit. Do you know anything about this Federal Reserve discount window? Because it seems like a lot of banks are not, prepared to use it.
Andy Woodward [00:21:22]:
No. It's like every bank has to participate. It's actually a requirement of being a bank. And basically, what it is is it's a short term lending capacity between or lending facility between banks. And what it's intended to do is that banks hold so extra deposits that aren't lent out are typically held in US treasuries. So those banks can then put the US treasuries as collateral to the, repo window and then actually borrow against cash deposits that are available, and they're going to have to pay the market rate.
Michelle Moses [00:22:05]:
So when What is the repo window?
Andy Woodward [00:22:09]:
So the
Michelle Moses [00:22:10]:
I know. It's so, like, how do you explain all this?
Andy Woodward [00:22:12]:
I know you and I have talked about it
Andy Woodward [00:22:15]:
Extensively in the past, and it is
Michelle Moses [00:22:18]:
it's very convoluted. Yeah. It really is. But it's Banking has this whole other market in the background called the repo market.
Andy Woodward [00:22:25]:
It's not really a repo in the typical sense of repossession. No.
Michelle Moses [00:22:30]:
It's not.
Andy Woodward [00:22:30]:
Like that. It's basically allows for banks that are short on cash to be able to put up collateral and borrow cash against other banks. So when the the Federal Reserve is setting interest rates, the only rate they're setting is the repo window rate. So
Michelle Moses [00:22:49]:
So that's how much a bank could borrow, what a bank can borrow at?
Andy Woodward [00:22:52]:
From other banks. Right. So it's it's the interbank lending rate is what it is. So it allows banks if they need cash, if they're short on cash to go to the repo window, pay the, Fed rate in order to borrow that cash. It's really what it's for.
Michelle Moses [00:23:08]:
Right. And so and what I'm reading is that a lot of banks are not prepared to they automatically tighten credit rather than go to the repo market, basically, to go borrow more money.
Andy Woodward [00:23:20]:
Well, again, it's a short term facility. It's not really
Michelle Moses [00:23:23]:
It's just overnight.
Andy Woodward [00:23:24]:
It's not really intended to be one of these long term. It's like, I want to lend out money. So I'm going to borrow it from the repo window. It's very volatile thing. And the the interest rates, even though the Fed sets the interbank lending rate, some of those repo window rates, like if there's a shortage of cash, and everybody's being really tight with it, some of the interest interest rates in the repo window have spiked to 16%.
Michelle Moses [00:23:50]:
Mhmm. Which is why we've seen the government infuse cash into it, which why do you think that's happening? I know we're totally getting off topic of keeping your deposit safe. But why do you why do we think that this is happening? Because this has been happening for like 5 years now that they've had to deposit money into it.
Andy Woodward [00:24:05]:
It's usually a liquidity crisis. Right.
Michelle Moses [00:24:07]:
And that's what another thing I was reading is that deposits are becoming less and less.
Andy Woodward [00:24:12]:
Right. Well For banks. Yeah. But the thing is is deposits are essentially what allow a bank to lend. Right. So if if they have deposits, what are they actually able to lend on
Andy Woodward [00:24:26]:
Is the issue.
Michelle Moses [00:24:27]:
And there are people just not keeping their money in banks, and they're just putting it to work. Because I think we get, especially in a low interest rate environment, what happens is people want to take more and more risk, they have more appetite for risk, because they wanna make more, and it's harder to make more. And so then you're pushing yourself, you know, to and you take a lot more.
Andy Woodward [00:24:45]:
Well, ever since prior to 2008, the great financial crisis, there was always an opportunity for depositors in regular savings account to make more than the inflation rate. So when interest rates went to 0, even with inflation at 2%, you still weren't able to keep up with inflation by having money stored in the bank. So because of that, you know, the intention was to keep people from holding on to their money and take more risks and get it out in the economy versus sitting on it. Until we return to a situation where savings accounts will keep up with and stay ahead of inflation. We need really need to return to that situation in order for banks
Michelle Moses [00:25:33]:
to be Right. And this is why inflation yeah. And inflation is so important.
Andy Woodward [00:25:38]:
Right. Yeah. But also interest rates being able, allowing depositors to actually stay ahead of,
Michelle Moses [00:25:46]:
Right. And and, stay ahead of the rate of inflation.
Andy Woodward [00:25:48]:
Right.
Michelle Moses [00:25:49]:
Yeah. I know. It's a very complicated world, guys. I mean, that's it's it all goes together.
Andy Woodward [00:25:54]:
Yeah. And, you know, it's been unfortunate, but, you know, the 14 years of, 14, 15 years of 0 interest rates, you know, really kinda was detrimental to the depositors and people that actually hold money for safety reasons.
Michelle Moses [00:26:12]:
Right. Yeah. And just for, like, the rainy day funds. Yeah. I mean, I I think that's the way we can think about it is that you're holding money for rainy day fund just in case something happens. And by us having interest rates at 0, we're all out there, you know, trying to get a return on something where it's not in the bank. And so that's where we're trying to kind of return to.
Andy Woodward [00:26:33]:
And as you mentioned, earlier, because it we have all these electronic mechanisms for being able to easily move funds between bank accounts. Banks need to be a lot more competitive on the deposits.
Michelle Moses [00:26:46]:
Right.
Andy Woodward [00:26:47]:
So they need to pay a market interest rate. So the old school arbitrage of being able to, you know, pay people a tenth of a percent and then lend them money even to
Michelle Moses [00:26:58]:
Yeah. People it's getting
Andy Woodward [00:26:59]:
half percent.
Michelle Moses [00:27:00]:
Yeah. It's well, the the playing field is getting more even Right. Now with the information. So information is traveling at the speed of light. And so their customers are able to make more, which is good, you know, but the banking industry kinda needs to move with it.
Andy Woodward [00:27:14]:
But that's also a little bit of short term thinking when it comes to interest rates because the banks themselves are generally buying treasuries that are, you know, 90 days rather than buying these 10 30 year treasuries. So they're in a situation where because they do need to be adaptive and competitive, you know, they the vehicles that they're using are very short term.
Michelle Moses [00:27:36]:
Right. Right. Well and so they're such, like, a victim to whatever's happening with the interest rates too.
Andy Woodward [00:27:41]:
Yeah. And that's what happened with the whole mark to market scenario that that they couldn't pay, market interest rates because they had essentially bought bonds at 2 a half percent.
Michelle Moses [00:27:52]:
Well, in a too long of a time period. Yeah. Yeah. Okay. Is there anything else that we're missing here? I feel like we kinda covered some some high points and things.
Andy Woodward [00:28:01]:
That's the big stuff.
Andy Woodward [00:28:02]:
Again, it's just, you know, we talked about the FDIC, but the National Credit Union Administration, CUA handles credit unions. All the,
Michelle Moses [00:28:11]:
It's the same, except the credit unions don't cover CDs and money market funds, and the FDIC does cover.
Andy Woodward [00:28:18]:
Right. But they do still have separate capacity that single and joint accounts are treated differently
Andy Woodward [00:28:23]:
Each individual across each one of the account types. So there is ways
Michelle Moses [00:28:29]:
Yeah. It's the same kind of thing. They're the same it's the same insurance, but it's a different organization. But they don't cover, yeah, the CDs and the and the money market. But I think they have other tools where that you can cover that. And so you guys, I really think a great tool if you are worried about your deposits is to go to the eddiedot fdic.gov. It's edie, and you can just type in every single account that you have at a bank. And I should talk about that we did not talk about all of your brokerage and, you know, if you invested in a stock, mutual fund, if you have taken your money out of cash and put it into another vehicle, it will not be covered by this by any of this insurance that we're talking about.
Michelle Moses [00:29:15]:
Because you've taken your money and you've put it into another vehicle like a stock, then it's going up and down with the stock market. So if your stock goes to 0, then obviously, you've lost all of your money. But if it goes up, then you'd make more. And so
Andy Woodward [00:29:28]:
Yeah. And the SIPC, which handles that, they don't cover you from taking risk yourself.
Michelle Moses [00:29:34]:
Right. They only cover your cash that's in the account. They're not.
Andy Woodward [00:29:38]:
They cover the SIPC covers, 250,000 in cash and 250,000 in equities. But even then, you know, we're not even we're not even getting into custody because there were, you know, at the same time Silicon Valley Bank was having its issues. There was a lot of concern about the mark to market that Schwab had, for example. They had a lot of long term treasuries that they intended to hold until the very end. Anyway,
Michelle Moses [00:30:08]:
one of the complicated. Yeah.
Andy Woodward [00:30:10]:
It's it's a little outside the scope of this discussion. One of the last things that I wanted to mention that really never comes up, but it is a consideration and it is the claims process. So if a bank does go under to the point that they're not able to, you know, move it off to another institution, which they've successfully been able to do most of the time, especially the last 40 years. It does you do have to file a claim if the bank goes under, and it takes about 1 to 3 months to get your money back, but the covered deposits are 100% returned at that point.
Michelle Moses [00:30:46]:
Okay. Interesting. Alright. So paperwork. You'd have to fill out paperwork to do the claim.
Andy Woodward [00:30:50]:
Okay. So it's not you know, that's one of the reasons why the FDIC prefers to before they get to the finish line and completely go undergo, uh-uh, we're going pair you up with another financial institution and part it out. So there is the continuity with with those accounts, so the accounts stay open. But if it does completely fail, then, you know, it's like any other bankruptcy process.
Michelle Moses [00:31:12]:
You need to file a claim, but they typically
Andy Woodward [00:31:13]:
take about 1 to 3 months. And
Michelle Moses [00:31:21]:
Alright. No. That's a great tidbit. I'm glad that, you mentioned that. So you guys let us know if you have any questions or anything. I know that we, covered a lot of acronyms, government acronyms that are super duper interesting, but I do think it's very important given the amount of uninsured deposits that there are out there. Please make sure that you cover your checking accounts and savings accounts or high yield savings accounts wherever you have your money and make sure, that you are covered and you don't have too much in there. And, Andy, thank you so much for being on again.
Michelle Moses [00:31:52]:
I appreciate it.
Andy Woodward [00:31:53]:
Of course. I always enjoy it.
Michelle Moses [00:31:54]:
I
Andy Woodward [00:31:54]:
think I think the key is to diversify whether it's across accounts, banks, types. You know, don't hold all your money in one spot.
Michelle Moses [00:32:01]:
Yeah. Don't put all your eggs in one basket. That I mean, I just think that that goes for investing. It goes for your accounts. I mean, it goes for everything, honestly. Yep. Yeah. Leave me a review and please tell your friends and thank you so much for listening.
Michelle Moses [00:32:18]:
I really appreciate you and all your feedback and your time. So thank you.
Disclaimer: The information provided in this podcast is for general informational purposes only and should not be construed as professional financial advice. Always consult with a qualified financial advisor or professional before making any financial decisions. The hosts and guests of this podcast are not responsible for any actions taken based on the information presented.