How a Bank Failure Affects You

Yesterday’s news was quite startling. Another bank, the Colonial Bank has failed! Can you believe it- in a span of just 7 months 77 banks have shut down in comparison to 25 banks last year? How much more devastating can this financial epidemic be? The financially healthy 25-million-USD bank succumbed to the fiscal disease, making this the biggest bank collapse of the year. The other banks that are victims of this recent onslaught of the fiscal pathogens are Dwelling House Savings and Loan Association, Community Banks of Arizona and Nevada, Union Bank and National Association.

Now this is what I call utterly devastating! Hey, hope I’ve not made you run to the loo to puke out in tension! Why feel tensed at all if you are insured with the Federal Deposit Insurance Corporation, popularly known as the FDIC? Your money is going to go nowhere regardless of the bank you’re a client of as long as you are insured with FDIC. Now, are you breathing easy? The Colonial Bank event alone is expected to cost the good Samaritan about 2.8 billion USD.

How Safe Are You?

If you’ve got less or around $250,000 with Colonial or any other bank then you need not worry at all. FDIC insures your money till $250,000. If you’ve got more, even then you needn’t worry because you can always spread your money in different accounts with the same bank or with different banks. Why go for another bank when you can open a joint account with a member of your family, maybe a spouse or a child? But if you think this is not going to work, you can open different accounts with amounts less than $250,000 for each account. You can always ask the bank staff for information about how you could get the maximum insurance reimbursement from FDIC. You can visit the FDIC insurance estimator to get an idea of the amount of compensation you’ll be getting owning to the failure. As long as you’re insured with FDIC you don’t have a care in this world because till date any insurance scandals were unheard of in the history of FDIC. So you can be sure of getting your money back.

How Does FDIC Cope With A Bank Failure?

FDIC works like the military during emergency. It takes control of the bank and tries to find buyers for the failed bank.It remains in control till the bank is bought. Don’t worry if you’ve got an emergency expenditure to meet and you can’t access your money in the bank. FDIC will see to it that you can access your account in the shortest possible time.

Banks usually loan out the money that you deposit with them and during bank failures this money gets stuck in its numerous ventures. If you are not insured then you might have to suffer along with the bank. But with an FDIC insurance you can be assured that you’ll not loose even a single dollar in the deal. Of course you might have to be prepared for a bit of a pain in the neck for all that is happening.

Under the FDIC umbrella you are safe as it covers a range of bank account types. Checking account, savings account, CDs, money market accounts are all covered under the umbrella. Sorry, if you’ve got a money funds account with your bank, please go out and stand in the rain. FDIC does not protect you there. Oh! Out there you’ll find company in those people who’ve got mutual fund accounts, safety deposit box contents, and insurance products such as annuities. These accounts are not regarded as bank deposits by FDIC and so you can expect to lose those. Another category that is at liberty to ‘enjoy the rains’ is the credit union. They can always run under the NCUSIF umbrella and not drench themselves thoroughly in the bank failure hardships rain. FDIC protects you only during a crisis like a bank failure. But don’t expect it to look into matters if you are a victim of identity misuse or illegal account usage. In such a case, most probably, you’ll have to seek the help of the police, your attorney and involved bank officials rather than bother the FDIC with this.

Though the FDIC umbrella is big, don’t think that it can cover you limitlessly. Do you think an extremely obese person can fit entirely under the umbrella, how much ever coverage it gives? If you have more than $100, 000 you should know that it does not cover your amount beyond that. For some retirement accounts the maximum coverage limit is $250,000. However, now, owing to the present economic crisis and bank failure, the FDIC has raised the upper limit to $250,000 to all depositors. The limits vary for different banks and you can cleverly increase your coverage amounts by opening accounts with different banks.

How Are You Affected By A Bank Failure?

When my stock of kitchen fuel gets over, I have one hell of a time fixing up the new stock and ensuring safety from the new equipment. But my husband and children seem to be unaware of all that’s going on in the kitchen. Well, they might only come to notice that their meals are taking a longer delivery time. That’s how you, as a customer, are going to experience a bank failure if you are covered under an FDIC scheme.  Their entire process of working is encapsulated. There’s not much difference for you than during the normal times. You can still carry on with a lot of your normal activities like using checks, debit cards, electronic transfers etc. After the bank resumes normal activities, you’re most likely to get new checks and credit/debit cards etc. If you want to transfer your money to another bank you can do so by a check or electronic transfer. If the failed bank is not bought by anyone, you’ll have to wait for FDIC to issue a check. If you have an uninsured deposit with the failed bank, you have reason to worry because FDIC will not run to help you then. First it will settle all the financial transactions of the failed bank and then distribute any remaining money within its creditors, that too after judging all the other expenditure.

How Long Does FDIC Take To Normalize The Crisis?

Though there might not be any fixed time limit within which FDIC normalizes bank procedures, FDIC holds the record of making money available within one working day. However, problems with your individual account or any unseen complications might delay the process a bit. The first thing that FDIC does is to create a new bank at least logically before any individual or institution buys it.

How Do I Escape A Bank Failure?

That is difficult to say in the present economic times. Take Colonial Bank, for example. Did you ever think that a 25 million USD bank will crumble down like this, especially when it was so prosperous just a few months ago? But you can always alert yourself about any such upcoming situations by going through reviews of the banks from reliable sources. A bank with bad rating is not advisable to invest in. The bank history will reveal its strengths, its business model and its coping history. Go through the ban profile and then open an account with it. You’ll be safer then.

Bank failures are caused by depositors who don’t deposit enough money to cover losses due to mismanagement. – Dan Quayle