On September 28th, 2007, my bank went bankrupt and closed its doors…goodbye, Netbank. The moment you first find out that your bank failed is a scary moment. First thought: “I know I should have figured out what FDIC Insured meant.” Second thought: “Google, can you save the day today?” How do you know if your bank failed and went bankrupt?
Photo by pedrosimoes7 via Flickr.
Banks don’t typically announce that they are closing the doors. The FDIC won’t tell you anything is in the works until it is done. Don’t expect to know beforehand. Fortunately, it is possible to do your own homework and do a bank rating save search just to get an idea of the bank’s financial strength.
But when they eventually fail it won’t be hard to find out. They will have something on their website and doors. Don’t forget that the news stations love this kind of news, as people stay tuned when their money is on the line.
If you don’t already know, this is a good time to learn about FDIC insurance.
Banks are required to purchase insurance to cover their savings in case the bank goes bankruptcy. This insurance covers you up to $250,000. If a bank fails and you have less than this amount in savings, you will get your money back.*
* Some people talk about a catastrophic situation where multiple banks close at one time. In this case, if there were ever more claims than money available, then it could theoretically be possible that you would not get your money. But, this is a long stretch.
If you have more than the FDIC insured balance when the account closes, you may not receive all your money back. David Barr says that, on average, people get 0.72 cents per dollar above the insured amount. It does range from anywhere between 0.40 – 1.00 per dollar.
Tip: If you currently have more than $250,000 in savings at a bank, split up your money between multiple bank savings accounts. It simply is not worth the risk of having huge sums of money in one account.
When the bank fails, the FDIC will assume all assets and attempt to sell the bank as soon as possible. You will be provided with a contact number that will help answer any questions you have. Before contacting the bank you will need to organize your financial documents so you know exactly what open accounts you have with the bank.
The most important question is who is purchasing the bank? Typically, the bank will be sold to another bank, and as quickly as possible, the bank will reopen (sometimes as quickly as overnight) and resume normal business practices. You might not even need to change banks.
During the time of transition between banks, you can still typically access your funds via ATMs and checks. Don’t expect, however, to walk into the branch and get cash.
If, however, the bank is not immediately bought out, your ATM card will no longer work and your checks will not be cleared. Within days, the FDIC will issue you a check for your total account balance, up to the insured amount.
If you have a home mortgage you will need to see who now holds the note.
If your bank was purchased by another organization, once the doors reopen, you can continue with business as usual.
I signed up for Netbank due to their generous sign up bonus. I got $75 for each money market account and $75 for each checking account. After getting each for my wife and I, we had $300 in bonus money. About a month later, I went to the Netbank website and saw a big notice that said they closed, or failed or something and the FDIC had taken over everything.
In my case, the purchasing bank was ING (now Capital One). Since I was already a long time banker with ING, they just asked for my account numbers. Within the week, almost all my funds were safely in the ING account. For some reason, when one of the accounts closed they sent a check instead of transferring the money. Within 10 days, everything was back to normal, other than the fact that I was not using ING Direct exclusively for my online banking.
In this specific case, if a customer did not have an ING Direct account, one was automatically opened for them and they could then either continue to use ING or transfer that money to another bank account of their choosing.
Though initially a bank closure is a highly fearful thing, there is really very little to be concerned about as long as you have less than the FDIC insured balance. In the worst case, you might go 10 days without access to your money. Does that sound like terrible news? Keep some money at home.