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If a healthy bank can't be found to take over the failed one, however, you'll face more hassles. The FDIC will give you notice that the bank is closing, and then your deposit accounts will be effectively shut down. It may take a few days before you get a check from the FDIC for your insured money.
After the bank closes, you won't be able to use ATMs or debit cards; any checks you've written that haven't cleared will likely be returned to you with the notation "bank closed." You should be given enough notice to avoid writing rubber checks, but if you ignore the FDIC's warning you could face bounced-check fees from merchants and late fees from billers. All this is relatively rare, because the FDIC usually has a buyer lined up, but it's always a possibility.
Your loans and credit accounts, on the other hand, will find a buyer. In the banking world, debts are considered assets with a dollar value that doesn't disappear just because the originating bank has. So you should still make your payments; you'll be contacted by the accounts' new owners with details about any changes. Speaking of which:
Keep your eyes peeled. If your deposits and loans are transferred, you're likely to get plenty of literature from your new bank(s). Read it all. Here's what to look for:
- Checking and savings accounts: Terms, fees and interest rates (if any) could all change. Pay special attention to any changes in minimum required balances; if they're higher than those of your old bank, you could incur expensive monthly fees. If you don't like what you see, shop around for another bank or a credit union.
- Installment loans: If you had a mortgage, car loan or other installment loan with a failed bank, your interest rate and payments won't be affected by the transfer, but the address where you send your payments might. Pay attention and adjust your online bill payment system so that your payment doesn't go astray. Your new lender could count you as late; even one skipped payment can trash your credit scores. There are plenty of reasons you want to keep your score high.
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- Revolving credit: Your new bank can change virtually everything about your credit cards and lines of credit, including the interest rate, credit limit, due date, grace period and fees. Note any changes and, again, shop around for a new card or credit line if you don't like what you see.
- Safe deposit boxes: Make sure to visit yours soon after the transition and ask whether the fees or due date for payment will change. After all the failures and mergers in the 1980s and 1990s, many depositors who thought they still had free safe deposit boxes found out too late that they didn't, and the contents of their boxes were auctioned off, with the money held by state escheat offices.
Keep some cash at home. Will you need it if your bank fails? Probably not, since in most cases you'll still have access to your accounts. Just in case your bank fails and isn't sold, however, you may want to keep enough cash around to tide you over for a few days. (Having a little cash is also handy in case of natural disasters that can disrupt the electronic banking system.)
Rest assured. With so many banks in trouble, some people are worried about the financial soundness of the FDIC. What these folks forget is that whole "backed by the full faith and credit of the United States government" thing. If the FDIC runs out of money, the U.S. government (and its authority to tax) will be standing by.
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Everyone needs an emergency fundIt's a stash of cash, but how much do you need? And why should this take priority over other savings goals?
As a depositor, you should find that reassuring. As a taxpayer, maybe not so much.
Updated Feb. 3, 2009
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