Answers To Common Questions By Depositors When A Bank Fails: One Answer That May Surprise You

Common Questions By Failed Bank Customers

The closing of a failed bank is usually a routine event but most people will have questions about how the closing of their bank will affect them.  Many people, for example, may be surprised when they find out how the interest rate on their savings can change when a bank fails.   The following is a list of important questions to have the answers to if your bank should fail.

• When will I receive my money?
• Will I keep receiving the same interest rate on my deposits?
• Will I have immediate access to my safety deposit box?
• What happens to my direct deposits?
• What if I have deposits in excess of the FDIC insurance coverage limits?
• Can I continue to use my checks of the failed bank?
• What happens to my checks and automatic payments that did not clear?
  

Keep in mind that most failed banks have their deposits assumed by a healthy bank and the depositors of the failed bank immediately become depositors of the assuming bank.  On occasion, there may not be another  bank that wants to acquire a failed bank and in this case the FDIC  will pay off the insured depositors by check.  The process of paying off depositors of the failed bank will usually begin within a couple of days of the bank closing, which could cause hardships for those depositors needing immediate access to their money.

Answers To Common Questions By Failed Bank Customers

The official FDIC answers to common questions that depositors at failed banks may have are as follows:

When can I expect to receive my money?
Federal law requires the FDIC to make payments of insured deposits “as soon as possible” upon the failure of an insured institution. While every bank failure is unique, there are standard policies and procedures that the FDIC follows in making deposit insurance payments. It is the FDIC’s goal to make deposit insurance payments within two business day of the failure of the insured institution.

How does a bank closing affect interest accruing on my deposits?
The FDIC’s insurance coverage includes principal and interest through the date of the bank failure up to applicable insurance limit for each deposit. The accrual of interest ceases on all accounts once the bank is closed. If an open bank acquires deposits from the failed bank, the acquiring bank becomes responsible for re-establishing interest rates and beginning the accrual of interest after the date of the failure of the bank. The acquiring bank may change the interest rate on the acquired deposits, but the depositor may withdraw their insured funds without penalty if they chose to do so. If no acquiring bank is found for the deposits and the FDIC pays the depositors directly for their insured amounts, interest does not accrue past the date of failure.

The fact that interest accrual stops on deposits once a banks fails may surprise many people.  This can cause a significant hardship if a depositor had purchased a long term CD at a high rate of interest and was relying on that interest income for living expenses.  At a time when banks are paying rock bottom rates on savings, the interest income that a depositor will receive on a newly issued CD can be significantly lower than what was being paid previously.

What happens to my direct deposits if my bank closes?
If the failed bank is acquired, all direct deposits, including Social Security payments, will automatically be re-directed to the deposit accounts at the acquiring bank.

If there is no acquiring bank, the FDIC typically attempts to find a nearby bank to take over the direct deposit function temporarily, to make Social Security and other government annuity payments available to the customers.

What happens to checks and automatic payments that have not cleared an account before my bank is closed?
When the failed bank’s deposits are assumed by an open bank, 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. An exception to this procedure may include 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.

In a payoff, however, any outstanding transactions or checks presented after the bank has closed cannot be paid or charged against the account. The FDIC needs to freeze all deposit accounts at the time the bank is closed to quickly pay the depositors for the insured deposit balances in their accounts. 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. However, it is your responsibility to make other funds available to creditors who receive checks that were returned and did not clear your deposit account because of the bank closing.

Can I continue to use my checks and deposit slips at the new bank?
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.

When can I have access to my safe deposit box?
When the failed bank’s deposits are assumed by a healthy bank, the branch offices usually reopen the next business day. At that time, you will have access to your safe deposit boxes. In the event of a depositor payoff, the FDIC will send a letter to you informing you of the closing. The letter will instruct you on how you can remove the contents of your box. Access to the safe deposit boxes is typically granted to the safe deposit holders the next business day after the closure.

If I have more than $250,000 in a closed bank and I am paid $250,000 by the FDIC, what happens to the amount in excess of $250,000?
If for example, a depositor has only a single account with a balance of $255,000, he or she would be paid $250,000 through FDIC insurance and would receive a claim against the estate of the closed bank for the remaining $5,000 which is not insured. The depositor would be given a Receiver’s Certificate as proof of this claim and would receive payments as the assets of the bank are liquidated. Deposit accounts are insured by ownership capacity.