What happens to my money if the bank fails or goes bankrupt in the United States?
In general, bankruptcies are very rare in the U.S. and other countries with strong banking systems, but as we have seen recently, they can happen at any time. Between 2001 and 2022, only 561 banks failed, according to the FDIC. And while that may seem like a high number, it is not when you consider that there are thousands of banks in the United States.
What is a bank failure?
A bank failure occurs when a bank is unable to pay its customers or others to whom it owes money.
The truth is that the likelihood of losing your money is low, as long as you have your money in an FDIC-insured institution and the amount is not too high, as it is insured only up to a certain amount of money.
Is my money safe in the bank? What if my bank fails? This is a question many are asking after learning about the recent failures of banks such as Silicon Valley Bank and Signature Bank. Both banks, which primarily catered to the technology industry, experienced a bank run that led to the intervention of regulatory authorities and the closure of the entities, making them the second and third largest bank failures in U.S. history.
Given this situation, it is normal for depositors to be concerned about the safety of their money, let’s analyze the issue.
Do I have a guarantee on my money, or do I lose it?
It depends on several issues, among them the amount of money you have and in which bank you have deposited it.
Most banks and credit unions in the United States are backed by FDIC or NCUA deposit insurance, so depositors should not have to worry too much.
However, it is important to be informed and take steps to protect your money in case the unexpected happens.
So what do I do if my bank fails?
One of the easiest ways to do this is to simply check to see if your bank is FDIC or NCUA insured, which can easily be done through their websites.
You can also follow financial news closely to stay on top of your bank’s financial health and act quickly if any problems arise.
Money is insured up to a limit
On the other hand, if you have more than $250,000 in an individual account at one bank, which is uncommon in most cases, the amount over $250,000 is not insured and experts recommend that you move the rest of your money to another financial institution. Instead, if you have several individual accounts at the same bank, such as a savings account and a certificate of deposit, they are added together and the total is insured up to $250,000.
For those who have more than $250,000 in their bank, there are some alternatives such as opening a joint account with someone else, such as your spouse, as a couple can easily protect a million dollars in the same bank by having an individual account and a joint account each. You can also consider moving your money to other financial institutions and having up to $250,000 in each account, thus insuring your money with the FDIC.
To take your money out of the bank or not
Although the uncertainty surrounding the safety of banks may lead some to want to withdraw their cash, experts do not recommend it. Keeping money in financial institutions rather than at home is safer, especially when the amount is insured. Even those with uninsured deposits generally get almost all their money back, although they may have to wait and have 10% to 15% of their savings deducted.
As for investments, the FDIC does not cover investments in stocks, bonds, mutual funds, life insurance, annuities, municipal securities, cryptographic assets, safe deposit boxes or their contents, bills, bonds, or U.S. Treasury notes.
While the thought of bankruptcy is worrisome, experts recommend staying calm and watching for signs of financial trouble at your bank, such as a declining stock price, worrisome financial reports or negative news.
Protecting your money in the event of a bank failure
One of the main ways it does this is by protecting the money people deposit in banks and savings associations. And unlike other insurance, you don’t need to buy deposit insurance; it automatically applies to any deposit account you open at an FDIC-insured bank.
It is important to note, however, that the FDIC does not cover or insure investments such as stocks, bonds, mutual funds, life insurance policies or annuities (even if purchased at an insured bank).
When can I get my money?
This will depend on several circumstances. The FDIC becomes the “receiver” and arranges for a different, healthy bank to take over the failed bank’s deposits. It then transfers your money to another FDIC-insured bank, so you will have a new account at a different bank where your funds will be safe.
The FDIC can also write a check and send it directly to you to cover the money in the failed bank’s account.