What Is a Bank Run and How Do I Protect My Money?

A bank run is a situation where many depositors withdraw their money from a bank at the same time, often due to concerns about the bank’s solvency or liquidity.

Bank runs can be caused by various factors, including economic crises, rumors, or news about a bank’s financial health.

While bank runs are rare in modern times due to the presence of deposit insurance and other safeguards, it’s still important to take steps to protect yourself from the possibility of a bank run.

Here are some tips on how to react to a possible bank run.

Spread your deposits

Instead of depositing all your money in one bank, consider spreading your deposits across multiple banks. This will help ensure that your funds are diversified and not all tied up in one institution.

Keep an eye on the news

Stay informed about your bank’s financial health by monitoring news and updates from the bank, as well as from financial news outlets. This will help you identify any potential issues early on and make informed decisions about your deposits.

Check your FDIC insurance coverage

Make sure that your deposits are covered by FDIC insurance, and that you’re within the insurance limits. If you have more than the insured amount in a single account, consider moving some of your funds to another bank to ensure they’re fully covered.

What is the FDIC?

The Federal Deposit Insurance Corporation (FDIC) is an independent U.S. government agency that provides deposit insurance to protect depositors’ funds in case their bank fails.

The FDIC was created in 1933 in response to the widespread bank failures that occurred during the Great Depression. It protects depositors by insuring deposits up to a certain amount per depositor, per insured bank.

As of 2021, the FDIC insurance limit is $250,000 per depositor, per insured bank, for each account ownership category.

This means that if you have deposits in different account types (such as checking, savings, and certificates of deposit) at the same bank, your deposits are insured separately up to the $250,000 limit for each account type.

What if your bank fails?

If your bank fails, the FDIC will typically step in and either arrange for another institution to assume the failed bank’s deposits and continue operating as normal, or it will issue a payout to depositors for their insured deposits.

This process typically happens quickly, and in most cases, depositors receive their insured funds within a few days.

It’s important to note that the FDIC only insures deposits at banks that are FDIC-insured. Not all banks are FDIC-insured, so it’s important to check with your bank to make sure your deposits are covered by FDIC insurance.