What happens to your money if your bank fails (2024)

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• The FDIC insures bank accounts for up to $250,000 per depositor, per ownership category.
• 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, but uninsured deposits may not be guaranteed.

On Monday, First Republic bank failed, and was purchased by JP Morgan. In early March, Silicon Valley Bank shut down, closely followed by Signature Bank.

In the rare event a bank closes, there is banking regulation set in place to protect consumers. Here's what you need to know if your bank fails.

What happens when a bank fails?

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

The FDIC insures up to $250,000 per depositor, per ownership category. (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 you lose in investment accounts. Single bank accounts and joint bank accounts are examples of different ownership categories.

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. In individual bank accounts, you are insured for up to $250,000. In your joint bank accounts, each person is insured for up $250,000.

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.

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 know information about the new bank and how it works.

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

When will I be able to receive my money?

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 money available within two business days of the bank shutting down.

What can I do if a bank fails?

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. Here are tips for how you can choose a bank.
• Track your total deposits to make sure you are protected by FDIC insurance. FDIC insurance only 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.

What happens if I had more than $250,000 in a bank account?

If your bank closes and you had more than $250,000 in an individual bank account, you can get a Receiver's Certificate. The Receiver's Certificate is a document that says you are allowed to claim funds which 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.

When was the last bank failure?

Aside from First Republic, Silicon Valley Bank, and Signature Bank, the last bank failure happened in October 2020, when Alamena State Bank in Kansas was shut down. Something to keep in mind is that significantly fewer banks shut down in recent years of economic downturns than during the Great Depression.