In the case of bank failures
You are protected by FDIC insurance. At the time I wrote this, you are insured up to $250,000. In my lifetime, it has been as high as $1,000,000 and as low as $100,000. I attached a link, which is updated by FDIC.
In the case of fraud
If you read this story and are horrified (I was too), you know that the banking system is not as safe as the other answers imply:
In February 2005, Joe Lopez, a businessman from Florida, filed a suit
against Bank of America after unknown hackers stole $90,000 from his
Bank of America account. The money had been transferred to Latvia.
An investigation showed that Mr. Lopez’s computer was infected with a
malicious program, Backdoor.Coreflood, which records every keystroke
and sends this information to malicious users via the Internet. This
is how the hackers got hold of Joe Lopez’s user name and password,
since Mr. Lopez often used the Internet to manage his Bank of America
However the court did not rule in favor of the plaintiff, saying that
Mr. Lopez had neglected to take basic precautions when managing his
bank account on the Internet: a signature for the malicious code that
was found on his system had been added to nearly all antivirus product
databases back in 2003.
But let's think about the story for a second - he had his money stolen because of online banking and he didn't have the latest antivirus/antimalware software. How safe is banking if you don't do online banking? In the case of this story, it would have prevented keyloggers, but you're still susceptible to someone stealing your card or account information. So:
- If you use online, have the latest security software.
- If you don't use online, you must be aware that you may experience card fraud or theft.
In the bank's defense, how does a bank not know that someone didn't wire money to a friend (which is a loss for good), then get some of that money back from his friend while also getting money back from the bank, which had to face the loss. Yes, it sucks, but it's not total madness.
As for disputing charges, from personal experience it also depends. I don't use cards whatsoever, so I've never had to worry, but both of my parents have experienced banking fraud where a fake charge on their card was not reversed. Neither of my parents are rich and can't afford lawyers, so crying "lawsuit" is not an option for everyone. How often does this occur? I suspect it's rare that banks don't reverse the charges in fraudulent cases, though you will still lose time for filing and possibly filling out paperwork. The way to prevent this:
- Keep a low limit on a card, so if something is stolen and the bank refuses to reverse the charge. Close the account if this happens and avoid working with the bank.
- Use cash and don't have a card. You still may have your cash stolen, though and if you misplace it, there's a guarantee that you'll lose everything.
As much as I hate to be the bearer of bad news, there is no absolutely safe place to keep your money. Even if you bought metals and buried them in the ground, a drifter with a metal detector might run across it one day. You can take steps to protect yourself, but there is no absolute guarantee that these will work out.
I added this today because I saw this question and have only seen/heard about this three times. Provided that you get the cashier's check back safely, you should be okay - but why was this person's account closed and look at how much funds he had! From his question:
In the two years I banked with BoA I never had an overdraft or any
negative marks on my account so the only thing that would stick out
was a check that I deposited for $26k that my mom left me after she
Naturally, people aren't going to like some of my answers, especially this, but imagine you're in an immediate need for cash, and you experience this issue. What can you do? Let's say that rent is on the line and it's $25 for every day that you're late.
Other steps to protect yourself
Some banks allow you to use a keyword or phrase. If you're careful with how you do this and are clever, it will reduce the risk that someone steals your money.