What Happens To Your Money If Your Bank Closes Down?

Just weeks after Silicon Valley Bank and Signature Bank collapsed, federal regulators seized First Republic Bank's assets in what was the second-largest U.S. bank failure. If you know how banks work, you know that they’re not babysitters for your funds. They take the money you deposit and try to make more money with it, which inevitably involves risk. The system works most of the time, and the chances of your bank failing are extraordinarily small. So, what if the unspeakable happens? The bad news is that much of your money would likely have already vanished. The good news is that you have little reason to worry because the U.S. government will refund at least a substantial portion of your loss. Government insurance (FDIC) dates back to the 1930s and insures accounts against bank failure. The process goes like this: When a bank fails, the FDIC swoops in to take charge of the bank in what’s called a conservatorship. If all goes well, FDIC’s takeover will go so smoothly that your banking will be business as usual. That’s because the FDIC is normally able to sell a bank pretty quickly. The bank may shut down on Friday and reopen on Monday after a takeover, and during that time you’ll still be able to use debit cards, write checks, and use ATMs. If the FDIC isn’t able to find a bank willing to take over the failed one, they will send you a check in the mail for the loss, up to the insured limit. Although this will get done as quickly as possible, you may not have access to funds during the interval, which can last a few days. Now for the million-dollar question: How much will you get back? The FDIC insures bank accounts up to $250,000 per depositor, per bank. It covers savings, checking, money market and NOW accounts, as well as CDs. However, it doesn’t cover things like mutual funds, stocks, bonds, or life insurance policies. If you have more than $250,000, you can take measures to insure all of it by spreading your funds across more than one bank. Just make sure they’re all owned by different institutions.