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Deposit Insurance

How does the news about two recent bank collapses affect you, a church leader?  It doesn’t…at least not directly, unless your church accounts are held at one of those banks.  But it does provide an opportunity to think about how to keep your church’s financial accounts protected.

The first step is to determine the type of financial institution that holds your funds: bank, credit union, or investment company.  Each type is covered by a different type of deposit insurance.  Most banks are insured by the Federal Deposit Insurance Corporation (FDIC).  Credit Unions may be covered by the National Credit Union Administration.  Investment accounts may be covered by Securities Investor Protection Corporation.  In Massachusetts, for its member banks, the Depositors Insurance Fund covers balances in excess of the FDIC insurance.

What are these organizations?  The federal government created the FDIC in 1933 in response to the financial collapse of the late 1920s.  If you deposit your money into an FDIC-insured bank, your funds in that bank will be insured up to a maximum of $250,000 per depositor and per “ownership category”, such as an individual account, a joint account, an IRA, a trust, or a business account.  For example, if you have multiple individual accounts (checking and savings), you are insured up to a total of $250,000 for all of them combined.  But if you have an individual account and a business account, you are insured up to $250,000 each.  Chances are your church only has one ownership category, even if there are multiple accounts, so the funds would be insured up to a maximum of $250,000.

Similarly, the NCUA was created by the US Congress in 1970 to insure federal credit unions, and the SIPC, also in 1970, to protect investors.  There was a Federal Savings & Loan Insurance Corporation that was absorbed into the FDIC in the 1980s.

Once you have determined whether or not your financial institution is covered, the second step is to add up the total balances at each financial institution, and compare that to the maximum amount that is insured.

If your church’s funds are substantially less than the maximum, then you have nothing to worry about in the event of a bank collapse, aside from the potential inconvenience of a brief delay in accessing funds.  If, however, your church’s funds exceed the maximum that is insured per depositor/ownership category, you might consider diversifying your church’s money into a couple of different federally insured financial institutions so that no one holds more than the maximum. 

While it’s always a good idea to periodically evaluate our financial practices, we don’t often review our accounts, especially ones we’ve had for a long time.  The March 2023 bank failures give us a reason to do just that.