The second lesson is to understand and take advantage of FDIC (and National Credit Union Administration (NCUA), the credit-union equivalent) limits. Essentially, the federal government insures bank deposits up to $250,000 per depositor per bank. So, if you have more than $250,000 in cash, it would be wise to split it up between different banks so it is all insured. While this is not always possible, it is generally a good practice.

The third lesson is that the government will often do more than it is required to do. The FDIC was only required to back up $250,000 of depositor money, but it essentially stepped in and insured all SVB deposits to prevent systemic risk to the financial system. While concerned about the moral hazard of “bailing out” businesses, the government felt that letting the bank—and its investors—fail without hurting depositors was the proper place to draw the line in these circumstances. The government has done similarly unexpected things in the past, such as the recent three-plus-year student-loan holiday. While you cannot count on these sorts of interventions, you can take advantage of them when they do occur. This particular action should make you a little more comfortable to keep more than FDIC limits in a single bank. It would not be surprising to see future Congressional bills and regulatory action directed at raising FDIC limits, either with or without requiring an insurance premium to be paid by the depositor.

The fourth lesson is that even successful businesses need back-up banking plans. The problem with the SVB crisis that required the government to step in was that it was about to affect the lives of everyday people. Their employers banking at SVB were profitable businesses with plenty of cash. However, through no fault of their own, they could not access that cash to make payroll and were facing possible loss of that cash. If they had some of their money elsewhere, even at a second bank, this would not have been nearly as much of a problem.

Cautious with Cash

The fifth lesson is that banks are not great places for you to invest large amounts of cash. While there have been times the last few years when a high-yield savings account paid more than money-market funds, that is no longer the case. As of this writing (in March 2023), the best money-market funds are paying over 4.5 percent while most high-yield savings accounts are only paying around 3.6 percent and the average savings account yield is 0.35 percent. If you have a need to hold large amounts of cash for any length of time longer than a few days, you are far better off linking your bank account to a high-quality money-market fund at one of the big mutual fund companies and moving money back and forth as needed. Not only will you earn a higher yield, but there is no risk of a bank run on a money-market fund. Money-market funds do not engage in fractional banking.