What Happens if My Bank Fails?

Normally banks are the safest place to stow your extra cash and save for a rainy day. However, what happens when it starts pouring on the bank itself and your bank fails? If you have learned that your bank failed, it may appear to be devastating news, but the first thing to do if your bank fails is do breath deeply, regain your composure and clear your head.  Although there may be a change of ownership and a couple of days of transitions, usually you will be well protected if your bank fails.

Some of the steps to prevent yourself from troubles caused due to bank failure must come in preventive measures from you, the depositor.

Before your bank fails: Check if your bank if FDIC protected

Your first step was to ensure that your bank was backed by the Federal Deposit Insurance Corporation will cover the deposits of any single account up to $250,000 (until the policy reverts to its old $100,000 maximum coverage limit). Additionally you need to ensure that your accounts are diversified (do not put all your eggs in one basket) to ensure that the FDIC insurance will cover all your investments.

After your bank fails: Business as usual

Then if your bank fails and it is taken over by either the government or another bank, the only thing you need to do is nothing, it’s business as usual. When financial institutions fail and other investors come in to save the day, as a consumer you will really not even notice a difference. Sure the name may change but the new owners want to keep the existing customers as that is what gives value to the business.

What if I think I might lose my money?

If the bank fails and you are actually at risk of losing the money, then you will need to make a claim for your loss. According to the FDIC, “Federal law requires the FDIC to make payment as soon as possible. Historically, the FDIC pays insurance within a few days after a bank closing either by establishing an account at another insured bank or by providing a check. Deposits purchased through a broker may take longer to be paid because the FDIC may need to obtain the broker’s records to determine insurance coverage.”

Extended FDIC insurance coverage for up to $250,000 was recently passed by the U.S. Treasury and will expire in 2013.