3 Things That Will Keep Your Savings Safe in an Emergency

When Silicon Valley Bank (SVB), the 16th largest bank in the U.S., was toppled in 2023, the federal government stepped in to keep 100% of savings safe. This was extraordinary; typically, the Fed only insures up to $250,000 per bank account. But many SVB customers had deposited more than that. All their deposits over $250,000 were at risk when the bank went under.

The FDIC guaranteed customers would get their money back, even when they had balances above $250,000. However, there's no guarantee they will do the same during the next banking crisis. (When such a crisis may come to pass is a hotly-debated mystery.)

Should your bank collapse or you suffer from a financial catastrophe, you could lose a lot of cash. Here are three things you can do to keep your savings safe in an emergency.

1. Have three to six months' worth of expenses in an emergency fund

An emergency fund is a castle where you can retreat to get through tough times. A good rule of thumb is to keep three to six months' worth of expenses within the fund.

When you might need it: a job layoff, a car accident, an unexpected hospital visit, or an unplanned vet visit. The point of an emergency fund is to prepare you to face the unknown and give you peace of mind.

The best place to keep your emergency fund is a high-yield savings account. These accounts offer the high rates of a money market account and the flexibility and minimal requirements of a savings account.

2. Pay off 100% of your credit card debt monthly

Paying off your credit card debt 100% is like putting money in a time capsule and sending it to Future You. It's a good habit to get into for a couple of reasons.

One reason is that card issuers charge you interest fees on unpaid balances at the end of each credit cycle, about once a month. The more debt you have, the more you pay. Like a cresting wave, unpaid debt builds and builds, growing ever more expensive with time.

Another reason to pay 100% of your credit card debt monthly is to keep your credit score healthy. Lenders check out your credit score to determine how trustworthy you are. The better your credit score, the better deals they'll offer you when you apply to finance a car or a house.

3. Keep $250,000 or less per bank account

When banks like SVB collapse, the Federal Deposit Insurance Corporation (FDIC) typically steps in. If the FDIC insures your bank -- and the best banks are always insured -- the FDIC will ensure you get back your deposits, up to $250,000 per account type and account owner.

However, if your bank goes bankrupt, you may lose deposits above $250,000. To stay safe, keep less than $250,000 per bank account. That way, the U.S. government has your back.

The FDIC insures checking and savings accounts, money market accounts, and certificates of deposit (CDs). FYI, if you deposit $250,000 in a checking account and $250,000 in a savings account at the same bank, you're only insured up to $250,000 total. That's because the FDIC lumps checking, savings, and money markets accounts together for insurance purposes. To get around this, you can split your savings across different banks, which are insured separately.

When is the next financial crisis?

Financial crises share one thing in common: they're unpredictable. Broad crises like recessions affect millions, but those who predict and profit from them are in the minority.

Personal bankruptcies are much more common than massive recessions. According to the U.S. courts, in 2023, bankruptcy was filed by 18,926 businesses and 434,064 non-businesses. Declaring bankruptcy can be hard on your wallet, credit score, and financial reputation.

Keeping your savings safe in an emergency can help you avoid taking out personal loans or filing for bankruptcy (one often leads to the other). A study by The Motley Fool Ascent cites loss of income as the most common reason for bankruptcy between 2013 and 2016. Building an emergency fund is one of the best ways to support yourself while looking for a new job.

You can start small and build up until you hit six months' worth of expenses -- or whatever amount brings you peace of mind (you know your needs best). The earlier you start, the better off you'll be.