On one family vacation to the beach, my sister slipped in a few feet of water. She had trouble standing and began screaming for help, fearing she might drown.
She was never at risk of drowning. But it didn’t feel like that to her.
You may identify with her panic right now.
“It’s such a perfect analogy for how people can get really stressed in a situation that they’re just not comfortable in,” said Anthony Saglimbene, chief market strategist for Ameriprise Financial. “And I would say the last year in the market and certainly, what’s happened over the last week with some of the banks, it’s an uncomfortable situation.”
The Federal Reserve has been raising interest rates to beat back inflation. That, in turn, is making your credit card debt more expensive. But if the Fed doesn’t tame inflation, consumer goods and services will stay too expensive.
If you’re invested in the stock market, your retirement savings may have dwindled because of a host of economic and global issues, including a war in Ukraine.
And if that weren’t enough, the recent failures of California-based Silicon Valley Bank and New York-based Signature Bank have rattled the financial services industry. Then Credit Suisse disclosed “material weakness” in its financial reporting, causing its stock to tumble and creating more concern about the banking sector.
You might wonder if there is more to come, especially if you recall the chaos of the savings and loan crisis, the demise of Washington Mutual during the Great Recession, or the iconic scene in the Frank Capra classic, “It’s a Wonderful Life,” when desperate folks make a run on the Bailey Bros. Building & Loan.
“Now, just remember that this thing isn’t as black as it appears,” George Bailey says to the bank customers crowded at the counter.
Nonetheless, poor George had to use his honeymoon money to keep the savings and loan open.
It’s not useful to tell folks not to panic when they fear their money is at risk. Much as it was with my sister, it’s hard to stay calm if you’ve lost your financial balance and worry you can’t stand up.
So, I’m going to do what I did for my sister and try to help put things in perspective because if you act on your fears rather than the reality of your situation, you could make things worse. Follow these four rules when financial events are making you panic about your money.
1. Don’t bail out of a good thing
“The first thing consumers should feel confident in is that money that they have in deposit accounts is safe and protected,” Saglimbene said.
The Federal Deposit Insurance Corporation (FDIC) insures deposit products, including savings and checking accounts, money market deposit accounts, and certificates of deposit.
Please keep this in mind: “In the 90-year history of the FDIC, no one has lost a penny of their insured deposits,” according to FDIC spokesman Brian Sullivan.
In fact, to calm depositors, the FDIC took the extraordinary step to fully protect all Silicon Valley and Signature depositors, even those with uninsured deposits. By the way, “no losses will be borne by the taxpayer,” the FDIC, Federal Reserve, and Treasury Department said in a joint statement. Losses to the deposit insurance fund to cover uninsured depositors will be recovered by a special assessment on banks.
Got money in a credit union?
The National Credit Union Administration (NCUA) is an independent federal agency that insures deposits at federally insured credit unions. It protects the members who own credit unions and charters and regulates federal credit unions. Like the FDIC, the insurance amount is $250,000 per share owner, per insured credit union, for each account ownership category.
Likewise, no one has lost a penny of insured share deposits within the credit union system. The Share Insurance Fund has the backing of the full faith and credit of the United States, according to an NCUA spokesperson.
“The credit union system remains well-capitalized and on a solid footing,” NCUA chairman Todd M. Harper said in a statement.
2. Do some homework
“When you see the headlines about a bank failing, that really erodes confidence,” Saglimbene said.
However, rather than become anxious and make a rash move, determine how much of your money is covered.
Deposit insurance works by ownership categories, and each is insured separately for up to $250,000. Your funds are covered up to that limit per depositor, per insured financial institution, and per ownership category. The five most common categories include individual, joint, retirement, trust, and business accounts.
Therefore, insurance coverage can increase depending on the account type.
For example, if you have a joint account at a bank or credit union, each joint account holder has coverage up to the $250,000 limit. So a two-person joint account with no beneficiaries would have $500,000 in coverage. An individual could still be insured for more than $250,000 under certain circumstances, according to the FDIC.
Both the FDIC and NCUA have online tools to help you estimate your insurance coverage for personal and business accounts.
The FDIC’s Electronic Deposit Insurance Estimator (EDIE) can be found at edie.fdic.gov. You can also call (877) ASK-FDIC or (877) 275-3342. For the hearing impaired, call (800) 877-8339.
The NCUA’s Share Insurance Estimator can be found at mycreditunion.gov/estimator. You can also call 1-800-755-1030. “We are currently experiencing a higher-than-normal call volume from consumers inquiring about share insurance coverage,” a spokesperson emailed. “We are responding to calls as quickly as possible.” Consumers also have the option of sending an email to firstname.lastname@example.org
You may be concerned about what happens if your institution fails and regulators take over.
When the FDIC is appointed receiver of a failed back — after the bank’s state regulator closes it — it moves in to make certain all banking services continue uninterrupted, the agency said.
In the case of Silicon Valley Bank and Signature Bank, the closures were sudden and didn’t allow enough time to arrange for acquisition by another institution, the FDIC said. So the agency stepped in as receiver to create a “bridge bank” to provide full service to customers and depositors.
Here’s what the FDIC says about direct deposits when a bank closes: “All direct deposits, including Social Security payments, will automatically be redirected to the deposit accounts at the acquiring bank. If there is no acquiring bank, the FDIC typically attempts to find a nearby bank to take over the direct deposit function temporarily, to make Social Security and other government annuity payments available to the customers.”
The FDIC and NCUA websites have FAQ sections that address a lot of questions in the case of an institution closure.
3. Lean into diversification
I personally have my money in several different institutions — one large bank and two credit unions.
I use the big bank for my household account. I also like it because when I travel, I have access to a vast network of ATMs and never have to be concerned about added fees to take out my money. Credit unions often have better rates on loan products.
“Obviously, it’s always good to be diversified, even with your bank and cash holding,” Saglimbene said. “I think there’s going to be more thought around the diversification of cash and where you have your banking needs, which I don’t think is bad.”
In a similar way, you want to be sure your investments are diversified, he added.
If you have a well-diversified portfolio of stocks, bonds and cash, then you’re likely able to weather this volatility and benefit when the markets rebound.
In fact, rising interest rates have led to higher rates for deposit accounts.
“If you’re investing in the types of conservative investments that most consumers want in their portfolio, you’re getting paid a lot more in terms of yield today than you were a year ago,” Saglimbene points out. “Now you don’t have to take as much risk in your portfolio to generate a return. I mean, money markets are now yielding over 4 percent.”
4. Stand up with a good strategy
“What you need to do during times of stress is to just pull your lens out a little bit and focus less on the near-term and more on the longer term,” Saglimbene said. “If you just take the lens out and you look at what’s the environment likely to be over the next few years, it’s likely to be better than what it is today.”
Fight through your fears.
My sister isn’t as afraid of the water as she used to be after taking swimming lessons.
“That analogy kind of brings home the point that investors do need to remain calm even during times of stress,” Saglimbene said. “If you’re following all the right steps. You’ll find that you’re okay. You’re not drowning, and you can stand up.”
B.O.M. — The best of Michelle Singletary on personal finance
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