Bank deposits above the FDIC limit are risky. How to protect yourself.

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State regulators took the extraordinary step over the weekend of taking entire uninsured depositors into two failing banks, but savers shouldn’t expect similar treatment if other banks go bust in the future, experts say.

Shut down by regulators on Friday, Silicon Valley Bank is the largest US bank to fail since Washington Mutual went bust in 2008. The Signature Bank followed at the weekend.

Experts say the US banking system is structurally sounder than it was 15 years ago, thanks in part to reforms implemented after the 2007-09 recession. The risk of Silicon Valley and Signature collapsing stems from fear of contagion rather than systemic weakness.

Despite this, the risk of contagion was so great that on Sunday evening banking supervision announced that the government would complete depositors at Silicon Valley Bank and Signature Bank, even those whose deposits met the $250,000 limit for Federal Deposit Insurance Corp. insurance. (FDIC) exceed.

President Joe Biden tried Monday to reassure savers that their bank deposits were safe. “The American people and American companies can have confidence that their bank deposits will be there when they need them,” he said in a brief address.

The US Treasury Department, Federal Reserve and FDIC said in a joint statement that any losses incurred by the Deposit Insurance Fund to help uninsured depositors will be recouped through a special audit of banks, as required by law.

Still, it’s important for future savers to be aware of FDIC insurance limits, experts say. “Keep your exposure to banking products below $250,000 per tax ID per institution,” said Richard Saperstein, chief investment officer at Treasury Partners, a New York City-based investment firm with $9 billion in assets under management:

How does FDIC insurance work?

The FDIC is an independent US government agency that protects bank depositors from losing their insured deposits in the event of their bank’s bankruptcy. The insurance is financed by the member banks – customers do not have to pay anything up to a coverage of USD 250,000 per ownership structure and institution.

What does that mean? You’ll get up to $250,000 in coverage for all deposits you hold with a bank across multiple product categories, including savings, accounts, checking accounts, and CDs. If you own any of these products in a joint account with a spouse, that’s an additional $250,000 in protection for the joint holdings.

It’s good practice to keep your cash within these limits, experts say. “We’re not only diversifying in our stock portfolio, but also in where we hold our cash,” said Chelsea Ransom-Cooper, board-certified financial planner and financial planning director at Zenith Wealth Partners in Jersey City, NJ. Clients can be sitting on a large sum of cash when they Putting money aside for a down payment on a house, she noted.

Certainly, spreading your money across multiple institutions can be a lot of work, especially for high net worth individuals. StoneCastle Cash Management is a New York-based company that allocates funds among its approximately 900 partner banks itself. It offers individuals up to $25 million in FDIC protection per tax ID at a current yield of 4.16%. The service is offered exclusively through advisors on behalf of retail clients who receive a 1099 form at tax time consolidating their multiple accounts across banks.

Max is a company that offers cash management services directly to individuals. It offers FDIC insurance coverage of up to $2 million per person or $8 million per couple based on the number of online banks currently supported on the company’s platform.

Keep in mind that money market mutual funds — funds that invest in short-term government bonds that count as cash equivalents — are covered by a different type of insurance, Ransom-Cooper said. The SIPC protects against loss of cash and securities with SIPC protected brokerage firms. (Note that the SIPC does not protect against market losses, only against money lost through means such as misconduct.)

Karl Schwab

is an example of a brokerage firm offering additional private insurance in case SIPC insurance is exhausted, Ransom-Cooper said.

Write to Elizabeth O’Brien at elizabeth.obrien@barrons.com