In today’s economy, you might wonder what will happen to your money if your bank fails, or if a federal or state banking regulatory agency closes down your bank. Although bank failures are unlikely, they can occur when a bank does not have enough money to meet its obligations to all of its customers. Therefore, placing your money in a bank insured by the Federal Deposit Insurance Corporation (“FDIC”) is your best defense against failing banks.
FDIC is essentially a federal insurance agent for banks. This means that if your bank fails, and your bank is insured by FDIC, then you are guaranteed to get a certain amount of your money back from the bank, which is generally up to $250,000.00 per depositor. The FDIC is in charge of not only insuring customers’ deposits, but also selling off the assets of a failed bank and distributing the proceeds to the customers who are owed money by the bank. If you have a bank account containing more than $250,000.00, then, you can file a claim for the excess amount, and you may receive more of your money back as FDIC sells the bank’s assets and distributes the proceeds.
The FDIC covers checking accounts, savings accounts, money market accounts, and time deposits such as certificates of deposit. If your bank fails, then FDIC will use its premiums that have already been paid by insured banks to pay your claim, up to the insurance amount mentioned above, or it may arrange for a financially sound bank to buy the failed bank in order to protect your money. Payments by FDIC can occur very quickly, and FDIC will also notify you by mail if your bank has failed, so it is important to always keep your address current with your bank.
In the case of a bank failure, you might also wonder what will happen to your paychecks if your employer deposits them directly into your bank account. If the FDIC has arranged for another bank to take over the failed bank, then the direct deposits will automatically be rerouted to the new bank. If there is no new bank, however, the FDIC will find another bank to at least temporarily take over all direct deposits until more permanent arrangements can be made, so that you can continue to have access to your money.
FDIC takes similar action with regard to checks or other banking transactions that have not cleared prior to your bank’s failure, or loans that you owe to a failed bank. If there is a new bank, all of your transactions should continue to process as usual. If there is no new bank, however, your check will be returned with a notice to the creditor, or the company or person to whom you owe money, stating that your bank has failed. This does not negatively affect your credit rating, but it is your responsibility to provide the creditor with another source of funds to complete the transaction. Likewise, you still have to pay on loans that you owe, even if the bank has failed. FDIC will contact you with information about where to direct your loan payments.
The information on this page is meant to provide a general overview of the law. The laws in your state and/or city may deviate significantly from those described here. If you have specific questions related to your situation you should speak with a local attorney.