What does the collapse of Silicon Valley Bank mean for your finances?

‍First, a quick recap of what happened with Silicon Valley Bank

This weekend, Silicon Valley Bank, a prominent bank for tech companies, startups, and venture capital firms, collapsed, resulting in the second biggest bank failure in US history. Confused about what happened? Here’s a quick recap: 

In 2021, Silicon Valley Bank (SVB) was holding deposits totalling over $100 billion. At the time, interest rates were at an all-time low, so SVB invested billions into U.S. Treasury bonds. 

In 2022, as inflation rose, the Federal Reserve raised interest rates to keep up, which lowered the value of government bonds, like the ones SVB had purchased. 

As this happened, SVB had to sell their bonds at a discount, which meant losing serious money. 

This might have been fine in the long run, but as tech companies have been struggling over the past few months, many of SVB’s customers have gone to withdraw money from the bank. In order to grant these withdrawals, SVB had to sell more bonds, at a loss of $1.8 billion. 

When other bank customers heard about this, it shook their trust in SVB as an institution and initiated a bank run, which is what it’s called when customers panic and all try to take out cash at the same time. 

On Thursday, March 9, customers raced to withdraw a total of $42 billion from Silicon Valley Bank. By Friday, the bank was taken over by the FDIC. 

^{(Sources: New York Times and NPR)} ‍

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How will the SVB collapse affect your money? 

It probably won’t. As long as your bank is insured by FDIC, your money is safe up to $250,000. The Silicon Valley Bank fiasco doesn’t mean that your local bank will suddenly collapse too.

Still, if you’re feeling on edge, here are some measures you can take to make sure you're banking safely.

‍Check account balances.

Make sure that your account balances are below the FDIC insurance limit, which is $250,000 per account type, per bank. For example, if you own an individual account and a retirement account with a bank, you will be insured for $250,000 in each account. Under that definition, joint account owners are insured up to a combined $500,000 per bank.

Diversify Accounts.

You can open accounts at different banks to increase your total amount of insured deposits. Spreading your funds across banks also means your money is not held with one specific institution. Additionally, besides savings and checking accounts at traditional banks, be open to alternative methods of storing your cash such as a certificate of deposit (CD), FDIC-insured accounts with apps like Albert and Acorns, stocks and bonds, and Roth IRAs.

Stay calm and know where your money is.

In the latest bank failures, federal regulators have decided to make all depositors whole, including uninsured depositors. The goal of financial regulators is to keep risks from spreading throughout the financial system. More likely than not, your money will be safe at any FDIC-insured bank. Most importantly, always know what’s happening with your money. When times are tough, it's easier to avoid looking at your accounts. However, the more you know about what’s going in and out, the better. You can use a financial assistant like Cleo to help manage your money better and gain increased financial literacy to help you in the future. 

_{Banking tips courtesy of Anna Yen, Cleo Money Trend Expert, CFA}

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Now, take a deep breath

Need more reassurance? Let this TikTok calm your nerves in under 30 seconds.
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