What Happens to My Money if My Bank Closes Down?

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. 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. Direct deposits will automatically start routing to your account at the new bank [source: Marquit and Bennett]. You should continue to repay bank loans as usual until further notice.

In the case of First Republic, the FDIC sold most of its operations to another bank, JPMorgan Chase on Monday, May 1, 2023. JPMorgan Chase assumed all of First Republic's deposits (both insured and uninsured) and bought most of its assets. The FDIC and First Republic will share the losses on First Republic's loans. JPMorgan Chase is the largest bank in America. The deal will cost the FDIC's insurance fund billions [source: Ensign and Eisen]

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. (The FDIC says it aims to make the payments within two business days.) Additionally, 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 $250,000 per depositor, per bank. So, if you share a joint account, you'll get half of it back up to the maximum of $250,000 for yourself. It may ease your mind to know that if you have under $250,000 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 $250,000 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, brokerage accounts you have through your bank are insured up to $500,000, through the Securities Investor Protection Corporation [source: Marquit and Bennett].

If you have more money than the insured limit in a failed bank that wasn't taken over by another bank, you can file a claim against the estate of the closed bank for the remaining amount. You would be given a receiver's certificate as proof of this claim, and when the bank assets are liquidated you can hopefully receive payment for the difference, according to the FDIC.