Money Management

Here’s everything you need to know about FDIC protection limits. 

For many Americans, the banking system is a bit like a car engine. When it’s working, we don’t think too much about what’s going on under the hood. But when it goes wrong, we quickly have to learn about some of the inner workings of the machine.

In recent weeks, the failure of Silicon Valley Bank and Signature Bank have put the Federal Deposit Insurance Corporation (FDIC) insurance and its $250,000 limits into the spotlight. Both banks had large amounts of uninsured deposits that could have been lost if authorities hadn’t stepped in and guaranteed them.

Moving forward however, if you’ve got sizable deposits in a bank that fails, authorities may not come to the rescue. Here are five steps to take to ensure your cash is covered.

1. Understand the FDIC insurance limits

FDIC insurance covers up to $250,000 per depositor, per bank, per ownership category. So, if you have a joint account with your significant other, it would be covered for up to $500,000 in the event of bank failure.

Understanding ownership categories is slightly more complicated. According to the FDIC, ownership categories include the following:

​​Single accountsJoint accountsCertain retirement accounts (This does not include stocks, mutual funds, or exchange-traded funds)Corporation/partnership/unincorporated association accountsRevocable and irrevocable trustsGovernment accountsEmployee benefit plan accounts

Let’s say you have a savings account, checking account, and certificate of deposit (CD) in your name at one single bank. Assuming your bank is FDIC insured, these would all fall under the ownership category of a single account and qualify for $250,000 in insurance. However, if you also had a qualifying individual retirement account (IRA) with the same bank, this would be covered for up to $250,000 in additional insurance as it’s a different ownership category.

The FDIC’s EDIE tool will help you calculate your coverage. Enter the amount you hold in each account to find out whether all your funds are protected.

2. Consider moving money to another bank account

If your funds are fully insured, you might not need to do anything else. However, if you have money that’s not protected, you might want to explore other options. There are reports that Treasury officials are looking for ways to expand FDIC insurance to cover all deposits. But right now, it isn’t clear how far the contagion from SVB’s collapse will spread and if your bank fails, any uninsured deposits could be at risk.

One option is to move some cash to another bank or credit union. It’s worth knowing that credit unions have their own form of insurance called the National Credit

Union Share Insurance Fund (NCUSIF), which gives you the same level of protection as FDIC insurance.

If you’re worried about potential bank failure, check out our list of some of the safest banks in the U.S. You might also look for banks that offer sign-up bonuses for opening a new account. You’ll likely have to deposit a certain amount and hold it there for a set amount of time. But if you’re able to get extra cash for something you would have done anyway, so much the better.

3. Consider a joint account

If you are able to add another person to your bank account, it could double your FDIC coverage. A joint account is a separate ownership category. This means a couple could hold up to $250,000 each in individual accounts and additional $500,000 jointly in a savings account. This would give them a total of $1 million in joint coverage.

4. Look at brokerage accounts

Brokerage accounts are protected against institution failure by something called Securities Investor Protection Corporation (SIPC) insurance. This is similar to FDIC insurance, though SPIC insurance works a little differently. It covers up to $500,000 of certain assets held at member brokerage firms, including up to $250,000 in cash.

Zooming out a little, if you have money you don’t plan to touch for the coming five to 10 years, a brokerage account could make sense for other reasons too. Savings and investments both play key roles in building financial security, but there’s a limit on how much money you need to keep in the bank.

Once you have a well-stocked emergency fund and enough money to cover your near-term plans, it might make sense to invest any additional funds for the long term. The average annual return for the S&P 500 was 14.8% between 2012 and 2021, which is considerably higher than rates at even the best savings accounts. That said, there are no guarantees when it comes to investing, and there could be years when your portfolio loses value.

5. Investigate alternative insurance options

If none of the above options appeal, some companies offer ways to insure higher deposits. For example, you could look for a bank that’s part of the Depositors Insurance Fund (DIF) as well as the FDIC. According to its website, all deposits above the FDIC limits at DIF member banks are covered, though all of those banks are based in Massachusetts.

WinTrust’s MaxSafe program says it combines individual FDIC protections by spreading deposits across various community bank charters. This allows it to insure as much as $3.75 million per account holder. If you go this route, do your own research and make sure you understand exactly how the company will insure those higher amounts.

Bottom line

There’s a lot of uncertainty around uninsured bank deposits right now. Start by finding out how much of your money would be covered in the event of failure. If you have excess deposits, don’t rely on the government to step in. Look at what options might work best for your situation.

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No, the IRS isn’t going to show up at your door immediately. 

We’re less than four weeks away from the 2022 tax deadline, April 18, 2023. This is when the IRS expects most people to have their returns filed. And those who don’t could find themselves in serious hot water — or not. Here’s what you need to know about what happens if you don’t file your taxes on time.

Nothing might happen at all

If any of the following things apply to you, you may not experience any problems if you fail to file your return on time.

You live in an area hit by a federally declared disaster

The federal government often extends the tax-filing deadline for those who live in an area hit by a federally declared disaster in order to give people more time to recover and gather all the necessary documentation. The length of the extension can vary, but it’s usually at least a month beyond the standard tax deadline. You can view a list of all tax extensions granted in disaster areas on the IRS’s website.

You filed a tax extension

Individuals always have the option to file a tax extension themselves if they want. This gives you until Oct. 16, 2023 to file your 2022 taxes. To do this, you must fill out an application and submit it to the IRS.

However, you should note that an extension to file your tax return does not grant you an extension to pay any outstanding tax bill you owe. If you expect a refund, you should be fine. But if you owe the IRS and you don’t pay the April deadline, you’ll begin to incur penalties as outlined below.

You don’t have to file your taxes

Not everyone is legally required to file federal taxes. Those with incomes below the standard deduction for their age and tax-filing status don’t have to file a return if they don’t want to. The following table shows how much you can earn before you have to submit a 2022 tax return.

It’s worth noting that just because you don’t have to file a tax return doesn’t mean you shouldn’t. Those who qualify for refundable tax credits, like the Earned Income Tax Credit, can benefit from filing a return even if their annual income was below the thresholds listed in the table above. Doing so could earn you a refund check you can spend on whatever you like.

Or you could face penalties

There are two types of penalties the IRS could charge you with if you fail to file your tax return on time. You could owe one or both.

Failure to File penalty

You could owe this penalty for not filing your return by Apr. 18, 2023, or whatever your extended tax deadline is. This penalty is 5% of the unpaid taxes for each month or part of a month that your return is late. It’s capped at 25% of your unpaid balance.

Failure to Pay penalty

This penalty depends on how long your taxes remain unpaid. You could owe this if you didn’t pay enough in taxes throughout 2022. This penalty is 0.5% of the unpaid taxes for each month or part of a month your taxes go unpaid. It will not exceed 25% of your outstanding balance.

If you owe both

Those who owe both a Failure to File and a Failure to Pay penalty won’t see their monthly penalties exceed 5% of their unpaid tax bill. The total will depend on how much you owe, but it could easily amount to hundreds of dollars.

How to avoid late filing penalties

Whenever possible, you should strive to file your taxes by the tax-filing deadline to avoid penalties and possible facetime with the IRS. Even if you believe you’ll owe more in taxes than you can afford to pay, you should still file your return now.

Doing so will help you avoid the Failure to File penalty, and there are payment plans you can sign up for that will cut your Failure to Pay penalty in half. To do this, you’ll need to set up monthly payments from a linked bank account. This will give you more time to pay what you owe without the IRS knocking at your door.

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As many Americans grapple with a steep drop in food benefits, some states are trying to help. 

This month marked the end of emergency food benefits nationwide. The allotments had meant extra cash for Supplemental Nutrition Assistance Program (SNAP) recipients each month. They were a temporary pandemic-related measure designed to help low-income families keep food on the table. And it worked.

Those additional payments made a big difference to millions of families’ bank account balances. For example, an Urban Institute study showed that emergency allotments kept 4.2 million people out of poverty in the fourth quarter of 2021. Unfortunately, ending those extra SNAP benefits will be painful, particularly as some households will see a sudden drop in income.

These five states want to pay extra food benefits

The Center on Budget and Policy Priorities (CBPP) estimates that some households will see their monthly benefits drop by as much as $250. It says the average person will receive about $90 less each month now that the emergency allotments have finished.

As a result, some states are looking for ways to continue to pay people higher food benefits. Here’s how five states are hoping to ease the pressure on people’s bank accounts.

1. New Jersey

New Jersey has already taken steps to boost SNAP benefits in the state by increasing the minimum benefit per household to $95. This is a lot more than the national minimum of $23, and is almost double the minimum payment of $50 the state set last year. The new minimum applied to SNAP benefits starting from March 1.

“By implementing a minimum monthly SNAP benefit of $95 for all beneficiaries, New Jersey is leading the nation in ensuring families have the support they need to keep putting food on the table,” said New Jersey Governor Phil Murphy.

2. Maryland

Maryland passed legislation last October to increase the minimum SNAP payment to $40 per month in households with anyone over the age of 62.

3. Massachusetts

In January, Massachusetts Governor Maura Healey filed a supplemental budget that included $130 million in funds to avoid a big immediate drop in SNAP payments after the end of the emergency aid. The idea is to create an “offramp” for families by providing three months’ worth of extra payments. If approved, households would receive an additional payment of 40% of the previous extra allotment benefit.

4. West Virginia

According to The Hill, West Virginia lawmakers have introduced at least five SNAP-related bills since the start of the year. These include a proposal to increase SNAP benefits for pregnant people and families with children by at least as much as the emergency allotments paid. It is early days for the bill as it was filed in the House in mid February.

5. District of Columbia

Lawmakers have been pushing the Give SNAP A Raise Amendment Act through the pipeline since 2021. It aims to supplement federal SNAP payments with a locally funded boost of 10% of the household’s maximum monthly benefit. It was passed by Congress a few weeks ago and now needs to be approved by the mayor and incorporated into the budget.

Stretch your SNAP benefits

News of budget proposals that may or may not pass in just a few states doesn’t do a lot to help families who are struggling to put food on the table today. However, the fact that some lawmakers are looking for ways to pay more in food benefits is better than nothing.

If you are finding it hard to afford food now that the emergency benefits have ended, call 211 to find out where your nearest food pantry is and what other help is available. Food pantries and soup kitchens may ask for ID and proof of address, but — unlike SNAP — there are no income restrictions for who they help.

It’s also worth seeing if you qualify for any additional food assistance. For example, the Women, Infants, and Children (WIC) program gives extra food benefits to women who are pregnant or breastfeeding, and to infants and children under 5 years old. In a similar vein, the Commodity Supplemental Food Program (CSFP) offers help to seniors.

Bottom line

The end of the emergency payments comes at a difficult time as many households are still grappling both with sky-high living costs and the potential the U.S. might enter a recession. If your family is having trouble making ends meet following the drop in benefits, you are not alone. Don’t be afraid to look for outside assistance, whether it’s from local authorities or charitable organizations.

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Ramsey acknowledges a loan really could be the right solution in one particular situation. 

Finance expert Dave Ramsey is not a fan of debt. He doesn’t believe you should use a credit card, even though many cards come with generous rewards. And he doesn’t think you should use debt consolidation loans, even when doing so could reduce your interest rate and make debt payoff easier. Ramsey is so anti-debt that he doesn’t even think you need a credit score.

But there is one situation where he acknowledges a personal loan could help you solve a financial problem. Here’s what it is.

The one time when Dave Ramsey actually suggests taking out a loan

Ramsey believes that a personal loan could be the solution to your problem if you are underwater on a car loan. Being underwater means you owe more on the car than it is worth. So, for example, if you have $15,000 outstanding on your auto loan but your car is now only worth $10,000, you would be underwater.

In a situation like this, Ramsey believes that “If you want to get out of an upside-down loan, you’ve got to sell the car.” But, the problem with doing so is that you have to pay off the remaining balance due on the loan when you do that. Now, ideally, Ramsey suggests saving up to do that. But he acknowledges that this takes time, isn’t always easy, and may not be the best solution if you want to get out of the upside-down loan quickly.

“If you’re drowning in car payments or you’re just plain sick of looking at the stupid thing sitting in the driveway, getting a personal loan so you can move on quickly is probably the best route for you,” he said. An unsecured personal loan is one you don’t need collateral for. You simply apply to borrow and get a loan with a set payoff schedule.

It may come as a surprise that Ramsey would suggest this. Indeed, he does believe saving is best because, in his words, “personal loans are almost always a horrible idea.” However, in this one situation, he believes there’s a worthwhile exception to his anti-debt stance. “In this case, getting one would let you sell the car and, potentially, get a smaller interest rate.”

Should you listen to Ramsey?

Many people have car loans that are simply too large to make sense, given their budget and personal finances. And many people are underwater because of low down payments, long car loan payoff periods, and the fact that vehicles lose their value quickly.

If your car loan is interfering with your ability to do other things and you’re underwater on it, then Ramsey’s advice may make sense. But keep in mind, you might have to buy another car depending on your situation (as many people need transportation).

Ramsey suggests finding a “super cheap replacement you can pay cash for,” in this situation — but if you don’t have the money to do that or you’re worried about potential repairs, this may be hard to do. If you would be forced into borrowing for another car if you sold the one you were underwater on, pay attention to whether the cost of the personal loan plus any new car loan you have to take out would really be cheaper than just sticking it out with your current vehicle.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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