Two questions are keeping Americans awake today. Number one, do we have enough toilet paper at home? And number two, should we pull our money out of banks? Ok, I am joking about the first one, but in times of crisis, a little sarcasm can be relieving. Now, in all seriousness, should you freak out and head over to the bank to stuff your pillowcase with cash?
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Should We Pull Our Money Out Of Banks?
The sentiment that we are feeling today due to the Coronavirus pandemic and the threat of another recession has taken me back to 2008. I remember exactly where I was when I got a call from my husband one Spring Wednesday at 11 am.
Calling me at work was totally out of character for him, so I immediately sensed that something was wrong. He broke the news in one sentence: “I just got laid off.” My stomach sunk. The fear of the unknown took over.
2008 Recession Déjà Vu
The worst-case scenario images invaded my mind. How are we going to make ends meet? Do we need to move out of the home we are renting and get a one-bedroom apartment? How can we afford to live solely on my salary? What if I also get laid off? And, of course, I was thinking, is our money safe in the bank?
After that call, life for us, financially speaking, was hell for about three years. Our income went down by 65%. Even though we eliminated every non-essential expense to get by, we ran out of unemployment benefits. We used up almost the last dollar in savings. When I thought that we were going to need to start using credit cards to supplement our survival, my husband finally got a job offer.
In hindsight, I can tell you that the lessons I learned from the 2008 Recession are keeping me today from freaking out. But what I am hearing from people, the news reports about a possible financial crisis, and the domino effect of the Coronavirus pandemic, feel like a déjá vu.
What I can tell you is to please, avoid knee-jerk financial reactions like pulling money out of the stock market or the bank, to bury it in the backyard or hide it under the mattress. I know how scared you might be feeling today, but know this. You should not pull your money out of the bank or the stock market. And this is why.
Why You Shouldn’t Pull Your Money Out Of Banks
Even in times of financial crisis, a bank is the safest place for your cash. Not only that, but there is also a federal agency that insures your deposits up to certain limits.
On March 18, the FDIC issued this statement to reassure American consumers that their money in the bank is safe.
“In light of recent developments related to the coronavirus, the Federal Deposit Insurance Corporation (FDIC) is reminding Americans that FDIC-insured banks remain the safest place to keep their money.”
FDIC
Back in 2008, I didn’t know what the FDIC was, but even in the midst of that crisis when I learned about its function, I got peace of mind.
What Is The FDIC?
The Federal Deposit Insurance Corporation is an independent government agency whose job is to ensure the money you have deposited in the bank up to certain limits, generally about $250,000.
The FDIC was created by Congress in 1933 “to maintain stability and public confidence in the nation’s banking system” after the Great Depression. So, if you do business with a bank that is FDIC insured, which you should, you should feel confident about your bank deposits.
Now, if you have more than $250,000 in one single account in the bank, you can split the difference. Open a different account in a separate bank, so that your entire funds are protected.
Please note that I am talking about money in bank savings, checking, money market, or certificate of the posit accounts, and also cashier’s checks or money orders. I am not talking about your retirement funds or investments.
Does The FDIC Insure My Retirement Account?
The FDIC does not insure your retirement or investment accounts. So, if you have money invested in stocks, bonds, mutual funds, life insurance policies, annuities or municipal securities, that money is not FDIC insured. You may have purchased those investments through an FDIC insured bank; however, they are not protected by the FDIC.
So, if you are feeling anxious and considering taking all your money out, I would recommend that you calm down and leave it alone. The FDIC states that since 1933, “no depositor has ever lost a penny of FDIC-insured funds.”
Should I Pull My Money Out Of The Stock Market?
You should also NOT pull your money out of the stock market. Even when you are looking at your investments hit rock bottom, with time, they will eventually recover.
Although this may sound absurd for many, this is the best time to put more money into the stock market. That’s the right move for people who have the extra cash to do so. Buying stocks during a downturn is like buying designer shoes on clearance, it’s the best deal!
But if you are concerned about losing your job, dealing with a pay cut, or running out of money, you should not be thinking about putting money into the stock market. You need to preserve every penny you have in your savings and checking account for now. Make sure that you are also budgeting, put a temporary stop to your debt snowball, and cut down non-essential expenses.
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How Do I Know If My Bank Is FDIC Insured?
If you do business with any of the national banks, like Bank of America, Chase, Wells Fargo, etc., rest assured, they are FDIC insured. You may have never noticed it, but most of them display the agency’s logo in their marketing materials or at their facilities. Also, you don’t need to do anything to apply for FDIC coverage; you get it automatically when you open an account with an insured bank.
To look for a specific bank, you can use the FDIC’s BankFind search tool. It will allow you to locate FDIC-insured banking institutions anywhere in the USA.
In Conclusion: Should We Pull Our Money Out Of Banks?
You should not pull your money out of banks even in uncertain times. The bank, assuming that you do business with an FDIC insured institution, is the safest place for your money. Your funds are protected, in most cases, up to $250,000.
If you have more than the insured limit in one single account, consider splitting the difference into a different account at another insured bank. Keep in mind that since the creation of the FDIC in 1933, “no depositor has ever lost a penny of FDIC-insured funds.”
You should also not pull your money out of the stock market. Instead of freaking out because your investments are plummeting, stop looking at your retirement and 401k statements. With time your funds will recover, and if you pull your money out now, the only thing that is guaranteed is a huge loss.
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What are your thoughts for the U.S. now that Australia is shutting banks and ATMs down during the pandemic? This is concerning to me, because it seems that the governments are separating the people physically, creating a food shortage, and then take OUR money away?
I don’t think this is happening in the US. And I am not concerned that this could happen .