Are you curious about FDIC insurance and how it works? Or are you worried about your bank deposits and are wondering how you will retrieve your deposits if your bank fails or is bought out? This article will inform you of the facts you need to know in case your bank fails or is acquired by another bank.
FDIC Insurance Background Facts
If a bank looks like it will close/fail, the FDIC takes one of two actions:
Purchase and Assumption Transaction. This is the preferred and most common method, under which a healthy bank assumes the insured deposits of the failed bank. Insured depositors of the failed bank immediately become depositors of the assuming bank and have access to their insured funds. The assuming bank may also purchase loans and other assets of the failed bank.
Deposit Payoff. When there is no open bank acquirer for the deposits, the FDIC will pay the depositor directly by check up to the insured balance in each account. Such payments usually begin within a few days after the bank closing.
Insurance requirements
The FDIC insures a maximum of $250,000 per depositor per bank. For example, you can have $400,000 worth of deposits at two different banks as long as the deposits at one bank do not exceed $250,000.
You don’t need to be a U.S. citizen for the FDIC to insure you; the FDIC protects all depositors of an insured bank.
The FDIC insures deposits such as checking, NOW, and savings accounts, money market deposit accounts (MMDA), and time deposits such as certificates of deposit (CDs).
Generally, you do not have to fill out any paperwork for the FDIC to transfer your account to their protection.
Investment products that are not deposits are not insured. These include products such as mutual funds, annuities, life insurance policies, stocks and bonds
Checks that were drawn against a deposit account that has been determined to be uninsured or an account that the deposit insurance determination is pending cannot be redeemed.
Facts: Deposit Payoff
If your bank fails and closes (also known as a payoff), this is when you’ll face hassles. The FDIC will notify you immediately in writing using the address you have registered with your bank. Then your deposit accounts will be shut down.
It may take a few days before you get a check from the FDIC for your insured money, depending on the circumstances of the bank failure. Federal law requires the FDIC to make payments of insured deposits “as soon as possible.” If no bank takes over the failed bank’s deposits, the FDIC tries to find a bank to take over the deposits temporarily.
The FDIC will send you information concerning how to remove the contents of your safe deposit box.
For any deposits you have exceeding $250,000 for all deposits, you would receive a claim against the estate of the closed bank for the remaining amount of money, which is not insured. You would be given a Receiver's Certificate as proof of this claim and would receive payments as the assets of the bank are liquidated.
You would only be able to collect interest up until the date your bank fails and closes. Once the bank closes, interests cease accumulating. If no bank acquires the failed bank’s deposits, the FDIC pays depositors directly for their insured deposits, but interest that would have been accrued after the failure date will not be paid.
Loan terms will remain the same. You should continue making loan payments to the same address, unless the FDIC notifies you of a change in address.
If your have debt such as credit accounts or loan payments with your failed bank, these assets will be acquired by another bank. The new owners of your debt will provide you details on new terms, where to send payments, etc.
Any outstanding transactions or checks presented after the bank has closed cannot be paid or charged against the account. Any outstanding checks or payment requests presented after the bank failure will be returned unpaid and will be marked to indicate that the bank is closed. This does not reflect on your credit standing.
Purchase and Assumption Transaction
All direct deposits will be transferred to the acquiring bank. You will not lose any deposits.
The assuming bank notifies depositors. This notification is also usually mailed the day after the bank is taken over.
When an open bank assumes the failed bank’s deposits, you may be able to access your bank account and make withdrawals or deposits within a day or two. As a matter of fact, your banking experience may feel and seem exactly the same as before your bank was seized. Some or all of the offices typically reopen the next business day and there is usually no interruption in the processing of checks drawn on the failed bank.
You will be able to have access to your safe deposit box the next business day after the closure.
If there is an acquiring bank, it will accept the checks and deposit slips of the failed bank for a short time. You will receive information about new checks and deposit slips from the acquiring bank.
The acquiring bank is responsible for re-establishing interest rates and the accumulation of interest after the day your bank fails. The acquiring bank may change the interest rate on acquired deposits, but you (the depositor) may choose to withdraw your funds without penalty.
Interest rates on savings accounts and CDs should remain the same. However, the FDIC reserves the right to change the interest rates.
Loans terms will remain the same. You should continue making loan payments to the same address, unless the FDIC notifies you of a change in address.
