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What You Need to Know If Your Bank Fails

  • 2010 4 Jan
What You Need to Know If Your Bank Fails


If it seems that more banks are closing this year than normal, you are absolutely right. Since January 2009, 106 banks and 19 credit unions have failed in the U.S. That's more than four times the number of closings in 2008. It's the most since the big savings and loan crisis of 1992. As grim as these statistics may be, you should not worry about your bank or credit union provided it is FDIC- or NCUSIF-insured.

In the unlikely event that your bank should hang a "Closed" sign on the front door, here's what you need to know:

Seamless transition. Closures typically occur on a Friday afternoon. In most cases, another bank takes ownership. Other than a different name on the front door, it should be business as usual on Monday morning. Your ATM card, debit card and checks will continue to work until the new bank ownership issues replacements to you.

What is covered. Checking accounts and Certificates of Deposit up to $250,000 are protected. As long as you are not over that limit, your money is safe.

What is not covered. Money in mutual funds, annuities, stocks, bonds or other investments that were purchased through this bank are not covered through an insured bank or credit union. If you have a safe deposit box, the contents are not covered by FDIC or NCUSIF insurance. The bank that takes over will allow you to access your safe deposit box so you can retrieve your possessions. If no other bank takes over and the FDIC takes ownership, you will receive a letter instructing you how to get your things from your box.

Worst case. While usually another bank will take over the failed bank, that is not a guarantee. If there is no takeover, the FDIC uses its insurance fund to make good on all customer accounts, up to the $250,000 limit. The law says that these payments must be made as soon as possible. Typically, this is just a matter of days. However, you need to be prepared for a few days to become more than a few days if many banks fail at the same time. While this is not a reason to panic, it is wake-up call for all of us to have a stash of cash available in a secret place that is not the bank. You need to be prepared to keep food on the table and gas in the car without access to your account funds.

Call your bank or credit union right now. Confirm that your deposits are insured. Check on the limits. If you have money in several accounts, make sure you have not exceeded the $250,000 limit.

One last thing. Prior to 2008, FDIC insurance was $100,000. It was increased to $250,000 to improve consumer confidence. The increase, however, was not permanent, and it could return to $100,000 in the future.

While a bank failure is a terrible thing, it should not be devastating to its depositors.

January 4, 2010

Copyright © 2009 Mary Hunt. All rights reserved. Permission to reprint required.

Check out Mary's recently released revised and expanded edition of The Financially Confident Woman (DPL Press, 2008).

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