The letters “FDIC” often bring reassurance that your money is safe even if a bank collapses. The Federal Deposit Insurance Corporation (FDIC) guarantees deposits up to $250,000 per account. However, with six FDIC-insured banks failing over the last two years, many people are now on edge, wondering if their bank might be next. The best way to confront this anxiety is by equipping yourself with knowledge and creating a solid plan to safeguard your funds.
What Happens When a Bank Collapses?
A bank collapses when it can no longer meet its financial obligations, including paying its debts and creditors. This can be due to years of accumulating bad debt or being overwhelmed by a sudden surge in customer withdrawals and loan requests. When a collapse occurs, government regulators step in to take control of the bank’s finances, with the goal of paying off as much outstanding debt as possible. For instance, your loan or mortgage may be sold to another lender, and you’ll continue making payments to them under the same terms. Unfortunately, customers’ access to their accounts is typically frozen until the situation stabilizes. The FDIC then works to secure the funds in customer accounts.
Accessing Your Money After a Bank Collapse
Rushing to your local branch or bombarding call centers won’t help you access your money during a bank failure. In fact, the bank is likely to restrict access to your funds. Media reports can amplify fears and prompt people to act impulsively, which usually makes matters worse. However, it’s important to remember that the FDIC and government regulators are handling the situation to protect your money.
In most cases, your checking, savings, retirement, and CD accounts will be transferred to another bank. Once this happens, you’ll receive an account with the new bank, and nothing will change except the institution’s name. The new bank will notify you about your account and provide answers regarding direct deposits, processed checks, automatic payments, and other transactions. In rare instances, the FDIC may send you a check for your account balance within a few days.
What Isn’t Covered After a Bank Collapse?
Not all financial investments are insured by the FDIC. Products like stocks, bonds, life insurance, mutual funds, safe deposit box contents, annuities, cryptocurrency, treasury bills, and municipal securities are not protected and could be lost. In some cases, loans or mortgages may disappear if no creditor is willing to take them on, requiring affected borrowers to renegotiate terms with a new lender.
Another area of potential loss involves deposits exceeding the $250,000 FDIC insurance limit. For example, if you have $400,000 in an account, the FDIC will only cover up to $250,000, leaving the remaining $150,000 unsecured. The FDIC will attempt to recover this difference, but it could take years, and there’s no guarantee you’ll get the full amount back.
How to Protect Your Money From a Bank Collapse
The Financial Stability Board (FSB) has designated certain large banks as “too big to fail” due to their importance to the global economy. The latest report from 2023 lists the following U.S. banks in this category:
- JP Morgan Chase
- Bank of America
- Citigroup/Citi Bank
- Goldman Sachs
- Morgan Stanley
- Bank of New York Mellon
- Santander Bank
- Wells Fargo
These banks are subject to restrictions on lending and required to maintain higher levels of cash reserves. While this offers some peace of mind, it doesn’t guarantee immunity from collapse. Therefore, it’s important to take additional steps to protect your money.
Steps to Safeguard Your Funds
Research FDIC-insured banks: Look into local, regional, and national banks, as well as digital banks and NCUA-insured credit unions. Evaluate the pros and cons of each and choose the one that best fits your needs.
Prioritize FDIC-insured digital banks: Verify that the digital bank you’re considering is partnered with an FDIC-insured institution. The FDIC’s “BankFind” tool can help you confirm whether a bank is FDIC-insured.
Diversify your deposits: Spread your money across multiple FDIC-insured banks or NCUA-insured credit unions. Ensure that no single account exceeds the $250,000 insurance limit.
Make sure your investments are insured: While FDIC insurance covers certain accounts like checking, savings, and CDs, it doesn’t extend to stocks, bonds, or life insurance. Ensure these types of investments are either FDIC-insured or held in FDIC-insured accounts where possible.
Take advantage of joint accounts: The FDIC insures up to $500,000 for joint accounts, allowing couples to protect up to $1 million across multiple accounts at a single institution.
Monitor your accounts regularly: Stay vigilant for unusual activity or changes in your bank’s policies and terms. These can affect your account, for better or worse.
Be wary of too-good-to-be-true offers: If a bank is offering something that seems too generous, it probably is. Avoid such offers, as they could indicate instability.
Bank accounts aren’t a “set-it-and-forget-it” tool; they are a secure place for your hard-earned money. While bank collapses are rare, they remind us that financial security isn’t guaranteed. Protect your wealth by staying informed and being proactive with your financial strategy.
The letters “FDIC” often bring reassurance that your money is safe even if a bank collapses. The Federal Deposit Insurance Corporation (FDIC) guarantees deposits up to $250,000 per account. However, with six FDIC-insured banks failing over the last two years, many people are now on edge, wondering if their bank might be next. The best way to confront this anxiety is by equipping yourself with knowledge and creating a solid plan to safeguard your funds.
What Happens When a Bank Collapses?
A bank collapses when it can no longer meet its financial obligations, including paying its debts and creditors. This can be due to years of accumulating bad debt or being overwhelmed by a sudden surge in customer withdrawals and loan requests. When a collapse occurs, government regulators step in to take control of the bank’s finances, with the goal of paying off as much outstanding debt as possible. For instance, your loan or mortgage may be sold to another lender, and you’ll continue making payments to them under the same terms. Unfortunately, customers’ access to their accounts is typically frozen until the situation stabilizes. The FDIC then works to secure the funds in customer accounts.
Accessing Your Money After a Bank Collapse
Rushing to your local branch or bombarding call centers won’t help you access your money during a bank failure. In fact, the bank is likely to restrict access to your funds. Media reports can amplify fears and prompt people to act impulsively, which usually makes matters worse. However, it’s important to remember that the FDIC and government regulators are handling the situation to protect your money.
In most cases, your checking, savings, retirement, and CD accounts will be transferred to another bank. Once this happens, you’ll receive an account with the new bank, and nothing will change except the institution’s name. The new bank will notify you about your account and provide answers regarding direct deposits, processed checks, automatic payments, and other transactions. In rare instances, the FDIC may send you a check for your account balance within a few days.
What Isn’t Covered After a Bank Collapse?
Not all financial investments are insured by the FDIC. Products like stocks, bonds, life insurance, mutual funds, safe deposit box contents, annuities, cryptocurrency, treasury bills, and municipal securities are not protected and could be lost. In some cases, loans or mortgages may disappear if no creditor is willing to take them on, requiring affected borrowers to renegotiate terms with a new lender.
Another area of potential loss involves deposits exceeding the $250,000 FDIC insurance limit. For example, if you have $400,000 in an account, the FDIC will only cover up to $250,000, leaving the remaining $150,000 unsecured. The FDIC will attempt to recover this difference, but it could take years, and there’s no guarantee you’ll get the full amount back.
How to Protect Your Money From a Bank Collapse
The Financial Stability Board (FSB) has designated certain large banks as “too big to fail” due to their importance to the global economy. The latest report from 2023 lists the following U.S. banks in this category:
- JP Morgan Chase
- Bank of America
- Citigroup/Citi Bank
- Goldman Sachs
- Morgan Stanley
- Bank of New York Mellon
- Santander Bank
- Wells Fargo
These banks are subject to restrictions on lending and required to maintain higher levels of cash reserves. While this offers some peace of mind, it doesn’t guarantee immunity from collapse. Therefore, it’s important to take additional steps to protect your money.
Steps to Safeguard Your Funds
Research FDIC-insured banks: Look into local, regional, and national banks, as well as digital banks and NCUA-insured credit unions. Evaluate the pros and cons of each and choose the one that best fits your needs.
Prioritize FDIC-insured digital banks: Verify that the digital bank you’re considering is partnered with an FDIC-insured institution. The FDIC’s “BankFind” tool can help you confirm whether a bank is FDIC-insured.
Diversify your deposits: Spread your money across multiple FDIC-insured banks or NCUA-insured credit unions. Ensure that no single account exceeds the $250,000 insurance limit.
Make sure your investments are insured: While FDIC insurance covers certain accounts like checking, savings, and CDs, it doesn’t extend to stocks, bonds, or life insurance. Ensure these types of investments are either FDIC-insured or held in FDIC-insured accounts where possible.
Take advantage of joint accounts: The FDIC insures up to $500,000 for joint accounts, allowing couples to protect up to $1 million across multiple accounts at a single institution.
Monitor your accounts regularly: Stay vigilant for unusual activity or changes in your bank’s policies and terms. These can affect your account, for better or worse.
Be wary of too-good-to-be-true offers: If a bank is offering something that seems too generous, it probably is. Avoid such offers, as they could indicate instability.
Bank accounts aren’t a “set-it-and-forget-it” tool; they are a secure place for your hard-earned money. While bank collapses are rare, they remind us that financial security isn’t guaranteed. Protect your wealth by staying informed and being proactive with your financial strategy.
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