Consumer Law

Dealing with Bank Failures

Fortunately, bank failures are rare. But because they happen infrequently, we take it for granted that the money we deposit at the bank is safe and will always be there until we withdraw it. However, it's important to understand that although there is insurance to protect consumers in the event of a bank failure, that insurance only covers certain types of deposits and certain amounts of money.

Smart consumers should regularly research the financial health of the banks they use, and should take steps to ensure that all of their deposit accounts are insured against bank failure.

What Is FDIC Insurance?

The Federal Deposit Insurance Corp. (FDIC) is a national agency that insures deposits at financial institutions (such as banks, and savings and loans), supervises financial institutions to ensure that they're following the law, and manages financial institutions if they fail.

FDIC insurance protects deposit accounts. These include:

  • Savings accounts
  • Checking accounts
  • Money markets
  • Certificates of deposit (CDs)
  • Individual retirement accounts (IRAs)

The FDIC does not insure:

  • Securities
  • Brokerage accounts
  • Mutual funds
  • Stocks
  • Bonds
  • Annuities
  • Life insurance policies
  • The contents of safety deposit boxes

How Much Is Insured?

As of October 3, 2008, the FDIC deposit insurance limit was temporarily increased from $100,000 to $250,000 per depositor through December 31, 2009. In general, if you have less than $250,000 in deposits at an FDIC-insured bank, your deposit accounts are automatically protected in the event that the bank fails. In addition, retirement accounts are insured for up to $250,000. In other words, the FDIC, which insures banks, will reimburse you the entire amount that you have deposited with a bank- up to these limits - even if the bank doesn't have enough money to fully reimburse you.

It's important to understand that when the FDIC calculates insurance amounts, it's looking at your cumulative deposits at a bank. For example, if you had $150,000 in a checking account at ABC Savings & Loan and $150,000 in a savings account at ABC Savings & Loan, you would only be insured for $250,000, not $300,000. However, if you had $150,000 at ABC Savings & Loan and $150,000 at XYZ Bank, each account would be fully insured.

If there are several owners or beneficiaries on an account, the total account would be divided among beneficiaries. For example, if John and Jane Smith have a joint checking account with $500,000, then John Smith would be insured for $250,000 and Jane Smith would be insured for $250,000.

These insurance rules can be difficult to understand. For that reason, the FDIC offers an Electronic Deposit Insurance Estimator (EDIE) that helps consumers determine whether their bank deposits are insured, and how much they are insured for.

How Do I Know if My Bank Is Safe?

FDIC maintains a "watch list" of banks that are potentially in trouble, but the FDIC doesn't make this list publicly available. Although the FDIC doesn't release this information, there are companies that compile similar lists, and evaluate the health of individual banks. A list of those companies is available on the FDIC's website.

The FDIC's website also provides detailed information about FDIC-insured institutions. Users can search a database of FDIC-insured institutions. Once you locate a particular bank, the site provides answers to questions such as:

  • Is the bank insured?
  • What is the current financial data for the bank?
  • How does the bank compare to its peers?
  • What is the primary agency that regulates this bank?
  • Where are branches located?
  • Where is the bank's main office located?
  • What is the bank's web site address?
  • Does the bank have a new name?
  • Is the bank still open?

How Do I Get My Money If My Bank Fails?

If you learn that your bank has failed, it understandably may cause worry and concern. However, if the bank is FDIC insured and if your deposits total less than $250,000, you have no reason to worry. The money is fully insured by the FDIC. You can then transfer your money to a new financial institution, or, if the FDIC allows it, keep your money at your existing bank.

If you have more than $250,000 in deposits at an insured bank, you'll need to contact the bank to determine how much of your money was insured, or you can wait for an FDIC claims agent to contact you to schedule an appointment. Depending on how much money the financial institution had when the bank failure occurred, you may receive all, some or none of your uninsured assets. The FDIC claims agent will walk you through the process and explain how much of your uninsured money you'll recover.

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