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This post has been updated and republished with a new guide on protecting your money from bank failure risks.
Read the latest version here:
Smart Money 101: What Happens If Your Bank Fails? How to Protect Your Money Before It’s Too Late
If a Bank Closes, What Happens to Your Money? Is Your Money Safe?
Not long ago, my bank’s app crashed for an entire weekend. Payday had just passed, and I couldn’t transfer money or withdraw cash. That experience made me realize how much we depend on banks—and how risky that can be.
Recently, Warren Buffett sold off a large portion of his financial stocks, including holdings in Bank of America and Citigroup. That raised an important question: Does he foresee trouble ahead? More importantly, how can we protect our money?
Can Banks Really Be Trusted?
A lot of people believe that big banks are too strong to fail, but history shows that’s not true. In 2023, several well-known banks collapsed, including Silicon Valley Bank (SVB). This caused major financial problems, similar to what happened in 2008.
The government tried to fix the situation, but that doesn’t mean your money is completely safe. In fact, a 2024 report from the U.S. Office of the Comptroller of the Currency (OCC) found that half of the biggest banks have serious financial risks. That means there’s still reason to be cautious.
What Happens When a Bank Fails? (And How to Prepare)
Have you ever had your bank freeze your account due to a so-called security issue? A friend of mine did. She had sufficient funds but could not access her account for three days. She had to borrow cash just to cover daily expenses.
If an entire bank fails, customers may find themselves in a similar situation, unable to access their money for days or even weeks. This is why having a backup plan is not just smart—it is necessary.
Two Effective Ways to Protect Your Money
1. Diversify Your Accounts
Most people are unaware that FDIC insurance only covers up to $250,000 per depositor, per bank. Any amount exceeding that limit is at risk if the bank fails.
To safeguard your money:
If you have more than $250,000, distribute it across multiple banks to remain fully insured.
Maintain at least three months’ worth of essential expenses in an easily accessible account.
Choose banks with a solid financial reputation.
Personally, I keep my money in two different banks—one traditional and one online. This ensures that I always have access to my funds, even if one bank experiences issues.
2. Keep Emergency Cash at Home
What if ATMs go offline or card payments stop working? I have seen this happen during storms when stores accepted only cash, leaving many people unprepared.
A simple plan:
Keep $3,000–$5,000 in cash at home for emergencies.
Store it securely but within easy reach.
Check periodically to ensure the bills remain in good condition.
Having cash on hand provides flexibility when electronic payment systems fail.
Final Thoughts: Take Action Before It’s Too Late
Warren Buffett is not selling bank stocks without reason. If one of the most respected investors in the world is being cautious, it might be wise to follow suit.
Here is a quick checklist to protect yourself:
Keep at least three months’ worth of emergency funds in an accessible account.
Do not keep more than $250,000 in a single bank—spread your money to stay FDIC insured.
Hold $3,000–$5,000 in cash for emergencies.
Having multiple ways to access your money is not an option—it is a necessity. Start taking small steps today to ensure your financial security tomorrow.
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