Navigating Bank Failures: Protecting Your Assets (2024)

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• The FDIC insures bank accounts for up to $250,000 per depositor, per ownership category, per bank.
• If a bank fails, insured deposits will be moved to another FDIC-insured bank or paid out.
• You'll usually get a Receiver's Certificate for money that isn't covered by FDIC insurance.

A series of bank failures in 2023 were some of the largest in US history, but a bank failure is still considered a rare event.

When it does happen, regulatory bodies step in to protect consumers as quickly as possible. Here's what you need to know if your bank fails.

How bank failures occur

Bank failures can be caused in part by insufficient financial management and poor financial health during economic downturns.

Public perception of a financial institution can also impact a bank. If enough customers are concerned about the vitality of a bank, they may simultaneously withdraw their money, triggering a bank run and depleting the institution's cash reserves.

How more US banks could fail

Protection for your deposits

FDIC insurance in the US

In response to the bank failures of the Great Depression, Congress founded the Federal Deposit Insurance Corporation (FDIC) to oversee banks and protect consumer bank accounts through deposit insurance.

Limits and coverage of FDIC insurance

The FDIC insures up to $250,000 per depositor, per ownership category, per bank. (Similarly, the NCUA insures up to $250,000 per depositor, per ownership category for credit unions.)

Checking accounts, savings accounts, money market accounts, and certificates of deposit are examples of FDIC-insured bank accounts. The agency doesn't cover money in investment accounts, even if part of your balance is held in cash.

Single bank accounts and joint bank accounts are examples of different ownership categories. In individual bank accounts, you are insured for up to $250,000. In your joint bank accounts, each person is insured for up to $250,000.

What happens to your money

Immediate steps after a bank failure

When a bank fails, the FDIC will generally make an announcement that the institution is being shut down. Then, the agency will look to sell the bank's assets to another FDIC-insured institution.

If another bank acquires the assets, depositors will be notified by the FDIC through the mail. There will be a transition process for the new customers so they can learn about the new bank and how it works.

If there isn't a bank that wants to acquire the assets of the failed bank, then the FDIC will send checks for the amount of the insured deposits.

Accessing your insured deposits

The Federal Deposit Insurance Act states that if a bank closes, insured deposits need to be available "as soon as possible." Generally, you can expect to have your money available within two business days of the bank shutting down.

Let's say you had $200,000 in a checking account and $200,000 in a joint savings account with a family member. If your bank closed, you would receive a total of $400,000 from the FDIC.

Now if you had $200,000 in a checking account and $100,000 in an individual savings account, you would only receive $250,000. Since the accounts are in the same ownership category, you would have $50,000 uninsured.

If your bank closes and you had more than $250,000 in an individual bank account, you may be able to get a Receiver's Certificate. A Receiver's Certificate is a document that says you are allowed to claim funds once the bank's assets are liquidated. You could possibly receive payments if there are funds available for distribution, but the FDIC doesn't specify that you'll get all your money back.

Try the FDIC's insurance estimator to determine your current coverage levels.

What happens to loans and mortgages

Your loan will be sold to another creditor or held by the FDIC and you will be notified within a few days where to send your payments. Your rights and obligation to pay the loan do not change.

Steps to take after a bank failure

If a bank fails, the FDIC is in charge of managing its assets. You'll have to wait until your money is moved to another FDIC-insured bank or mailed to you as a check in order to have access to it.

That said, here are a few things you can do to still be on top of your finances if your bank shuts down:

• Review the due dates for bills involving automatic payments or checks you needed to send. If your money was moved to another bank, automatic payments and checks will usually be processed without issue (unless the check is for more than what's insured in a bank account). However, if your money was mailed to you as a check, any outstanding payments will be considered unpaid. To avoid any late fees, you'll also want to review the due dates of your bills and find an alternative way to pay, like using a credit card.
• If your money is moved to another bank, learn more about it. Products, services, fees, and policies vary greatly between financial institutions. If your money is moved to another bank, take the time to understand your new institution's structure. During the transition process, you'll usually get information about the bank and how it works. If you have any additional questions, you can also contact the bank's customer support.
• If your money is mailed to you as a check, consider opening a new bank account at an FDIC-insured financial institution. Money deposited into bank accounts will be safe as long as your financial institution is federally insured. If you were mailed a check for your insured deposits, you could open a new bank account at another FDIC-insured bank.
• Track your total deposits to make sure you are protected by FDIC insurance. FDIC insurance covers $250,000 per owner, per ownership category. To help make sure your money is protected in future instances, try tracking your total deposits. If you want to keep more money in the bank than the FDIC will insure, you could open another bank account at a separate bank.

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