1Her life
Maya keeps $1,500 of her paycheck in checking for bills and moves $500 into a savings account that pays her interest.
It feels like her money is just sitting there, safe in a vault. It isn't. And that's normal.
2How it works
A deposit is a loan you make to the bank. When Maya puts money in, the bank owes it back to her, whenever she asks. Her balance is the bank's promise.
Banks don't keep all of it in a vault. They keep some ready for withdrawals, mostly as reserves in the bank's own account at the Fed. They lend a lot of the rest to people like Jordan, and put some into safe investments like US government bonds (Treasuries).
That's a big part of how a bank earns money. It pays Maya a little interest on her savings and charges Jordan more on his loan. The difference helps pay the bank's costs, and what's left is profit. Banks also earn money from fees.
Maya's money is protected, as long as her bank is FDIC-insured. If a bank insured by the FDIC (Federal Deposit Insurance Corporation) fails, deposits are covered up to $250,000 per depositor, per bank, per ownership category. Ownership category means whose name is on the account: accounts in your name alone are one category, and joint accounts are another. So Maya's checking and savings, both in her name, share one $250,000 limit. It covers checking, savings, money market deposit accounts and CDs (certificates of deposit). It does not cover stocks, bonds, mutual funds or crypto, even if you bought them through a bank.
Why her savings rate changes. Banks don't have to follow the Fed, but when the Fed raises its key interest rate, savings rates often rise too, usually more slowly, and loans get more expensive.
3It really happened
$42 billion
A bank run is when many customers try to withdraw their money at once because they fear the bank will fail. Customers tried to pull about $42 billion out of Silicon Valley Bank in a single day, according to California's banking regulator.
Closed
The next day, that regulator closed the bank and handed it to the FDIC.
Every dollar
The Treasury, the Fed and the FDIC announced that all depositors would have access to all of their money, including the part above the $250,000 limit. It was an exception, used because officials feared the panic would spread to other banks.
Worth knowing
Bank failures are uncommon in the US, and deposit insurance is a big reason why: it means people don't need to rush to get their money out first. Since the FDIC was founded in 1933, no depositor has lost a penny of FDIC-insured money, according to the FDIC.
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Sources for this chapter (6)
Maya and Jordan are fictional; every number in "It really happened" is real and sourced. We explain how it works. What you do with it is your call. Commentary and education only. Not financial advice.