If you're a depositor at an FDIC-insured bank, you've got a nice safety net of insurance to fall back on even if your bank goes under. You reap the benefits of insurance even though you haven't spent a penny on premiums. That's because banks pay the premiums for each depositor. These make up the FDIC's deposit insurance fund, which it dips into when it needs to pay back a depositor's loss.
The process goes like this: When a bank fails, the FDIC -- which keeps a close eye on how banks are doing -- swoops in to take charge of the bank in what's called a conservatorship. Although you won't get advance notice, you'll receive a letter in the mail about the closing after it happens. You may even read about it in the newspaper. If all goes well, the FDIC's takeover will go so smoothly that business carries on as usual.
That's because the FDIC is usually able to sell a bank pretty quickly. This entails finding another, healthy bank to assume the failed bank's business. The bank may shut down on Friday and open Monday after the takeover. During this time, you'll most likely still be able to use debit cards, checks and ATMs -- at least up to your insured limit [source: Bruce]. Direct deposits will automatically start routing to your account at the new bank. You should continue to repay bank loans as usual until further notice.
If the FDIC isn't able to find a bank willing to take over the failed one, however, things will go differently. The FDIC 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. Also, you'll eventually get instructions on what to do about your safety deposit box.
Now for the million-dollar question -- how much will you get back? The FDIC insures bank accounts up to $100,000 per depositor, per bank. So, if you share a joint account, you'll get half of it back up to the maximum of $100,000 for yourself. It may ease your mind to know that if you have under $100,000 in the failed bank, you'll get all of it back -- the FDIC has solid track record of never failing to return a penny of insured funds [source: FDIC]. This insurance covers savings, checking, money market and NOW accounts, as well as CDs. However, it doesn't cover such things as mutual funds, stocks, bonds or life-insurance policies.
If you have more than a hundred grand in the bank, you can take measures to insure all of it. One way to do this is to spread your funds across more than one bank -- just make sure they are owned by different institutions. You can even maximize how much you have insured at one bank by taking advantage of different ownership categories. For instance, IRAs are insured up to $250,000. But even if you didn't take the time to insure all of your bank funds, the FDIC goes the extra mile and tries to refund even uninsured funds. Although it can't always return all of your money, on average it returns 72 cents on the dollar [Bruce].
If you still have questions about what is or isn't insured, visit the FDIC estimator link on the next page.
Originally Published: Aug 27, 2008
These companies, which include Chex Systems and Early Warning Services, collect and report information about checking accounts you’ve had in the past. If you’ve had your account closed due to an unpaid negative balance, the bank or credit union would typically report this “involuntary closure” to a checking account reporting company. You may also be reported if you were suspected of fraudulent activity by the bank or credit union. Banks and
credit unions often use reports from these companies to help decide whether to offer you a checking account and the type of checking account to offer you.
Tip:
Some banks and credit unions use additional information, such as information from your credit report, to determine whether or not to let you open a checking account.
Also, debts that come from negative closing balances are sometimes passed on to debt collectors, and those debt collectors might supply information to the big three consumer reporting companies that the debt is in collections. That would affect your credit report and score.
You have the right to know what information is in your report(s). Get more information about requesting a copy of your checking account report.
If you review your report and spot errors, you can file a dispute and then ask that the company correct the error. You should also dispute the inaccurate information directly with the bank, credit union, or merchant that first reported the information to the checking account reporting company. Get more information about disputing information found on your checking account report.
Tip:
If you’ve had difficulty opening or managing a checking account, see our consumer guides on choosing and managing checking accounts. You might also consider getting a prepaid card.
See our consumer guide to selecting a lower risk account
See our consumer guide to managing your
checking account
See our consumer guide to checking account denials
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