If My Bank Fails, What Happens to My Money? (2024)

For three years -- from the fall of 2020 to the start of 2023 -- no banks failed in the US. Then, Silicon Valley Bank collapsed in March 2023, becoming the second-biggest bank to ever fail in the US. Just under two months later, First Republic took that title. And in April of this year, Republic Bank was acquired by Fulton Bank following seizure by state regulators. Should you be worried about the money you have in your bank?

Bank failure may seem scary, but the money in your checking and savings account is more than likely safe, thanks to federal insurance coverage protecting deposits in the event of bank failure. But there are some exceptions. Here’s what you need to know.

Recent bank failures

Five banks failed in 2023: Silicon Valley Bank, Signature Bank, First Republic Bank, Heartland Tri-State Bank and Citizens Bank (not this Citizens). Republic Bank’s failure is the first we’ve seen in 2024.

While bank failures are concerning for customers who’ve deposited money at that particular institution, the impact on the broader economy is typically limited. In the case of Citizens Bank in Sac City, Iowa, the institution had only $66 million in assets and $59 million in deposits when it failed -- a relative drop in the industry’s bucket. Republic Bank had around $6 billion in assets and $4 billion in deposits as of Jan. 31.

But bigger players like First Republic, which had around $229 billion in assets and just below $104 billion in deposits when it failed, can have serious implications for the entire banking system, such as declining consumer confidence in the industry and bank runs.

Why do banks close?

Banks fail for a wide range of reasons, and when they do, the Federal Deposit Insurance Corporation typically issues a report explaining what paved the way to the worst-case scenario.

In the case of Silicon Valley Bank, a key driver was a classic bank run -- when a large number of depositors get wind of trouble and rush to withdraw their money. Banks don’t have the cash on hand to meet these demands, which leads to more worries and a faster stampede to take out money -- a cycle that eventually dooms the institution. However, the FDIC pointed out that the bank also failed “to mitigate interest rate risk.” When the Federal Reserve started hiking rates to fight inflation, the bank’s business model wasn’t ready for the shift.

In other cases, bank failures come down to something much simpler: bad leadership. The FDIC’s analysis of Signature Bank’s ultimate doom was “poor management.” It’s proof that bank failures can ultimately be the same as any other business failure: If the decision-makers at the top make bad decisions, it’s not going to end well.

Republic Bank’s failure was due in large part to rising interest rates that hurt its commercial real estate portfolio. But it also lost a funding opportunity when a potential investment by the Norcross Braca Group fell through as a result of Republic Bank’s failure to meet closing conditions.

What happens to your money if your bank closes

If you’re worried about your bank’s health, you should make sure the institution is part of the FDIC -- or, in the case of credit unions, the National Credit Union Administration. If it isn’t, it’s time to find a new place to move your money.

If your bank does fail, here’s what will happen next.

If your bank is federally insured

Most banks and credit unions are insured by the FDIC or NCUA, which protects your deposits for up to $250,000 per person, per account type, including checking, certificate of deposit, money market and savings accounts. In some cases, funds on prepaid cards also qualify for FDIC insurance if certain conditions are met.

If your bank closes, the FDIC will either try to move your money to another bank in good standing or mail you a check for up to the insured amount. If it doesn’t move your money, the bank should mail you a check within two business days of closing.

If your money is in a trust or issued through a broker or employer plan, the FDIC will need supporting documentation, and it may take longer to receive your funds. If you have more than $250,000 in your account, it’s still possible that you can receive the full amount, but you’ll need to file a claim with the FDIC. Then, as the bank’s assets are liquidated, you may receive payments.

Note that the FDIC doesn’t protect the following, even at insured banks:

• Stocks
• Bonds
• Mutual funds
• Annuities
• Life insurance policies
• Safe deposit boxes
• US Treasury bills, bonds or notes
• Municipal securities
• Cryptocurrency

Similar to the FDIC, the NCUA insures credit union deposit accounts. If your credit union is NCUA-insured and closes, you’ll receive a notice by mail. It’s important to note that the NCUA’s process differs from the FDIC’s. Credit unions don’t fail without warning. The NCUA first places them in conservatorship and attempts to help them resolve their operational issues. If they can’t, the NCUA helps them merge with another credit union or liquidates their assets.

The NCUA will send you a letter notifying you if your credit union closes and will return your funds within five days of closing. If your balance exceeds $250,000, you’ll need to complete a Member Confirmation and Affidavit form to receive any funds over the insured limit.

The NCUA doesn’t cover losses from the following:

• Stocks
• Bonds
• Mutual funds
• Annuities
• Life insurance policies
• Municipal securities

If your bank isn’t insured

If your financial institution isn’t covered by FDIC or NCUA insurance, things can get more challenging. There isn’t a playbook to follow since the FDIC and NCUA have no reason to get involved.

There is a notable exception related to uninsured deposits, though. The FDIC wound up covering both insured and uninsured deposits when Silicon Valley Bank collapsed via a systemic risk exception -- a sign of just how important that institution was to the broader industry.

What to do if your bank closes

Watch for official notifications

If your bank closes, you should receive notification of what will happen to your money from the FDIC or NCUA, the acquiring bank or both. You’ll automatically have an account at the new bank, or the FDIC or NCUA will issue you a payment returning your funds.

Assess the options at the new bank

Assuming your account is transferred to a new bank, look at the terms and conditions of your new account. Will you need to have a larger minimum balance to avoid fees? Are there branches nearby? Does the institution offer a sophisticated digital experience? These factors can help you decide if you should keep your account at the new bank or find a different bank.

Compare other places to move your money

As you evaluate the acquiring bank, also take time to reflect on what you need from a bank. There are plenty of great banks and credit unions offering top-notch customer service and low fees. Use this as a time to find the best home for your money.

Update your account information with your employer and online bill pay

If you stick with the acquiring bank, your direct deposits should automatically begin landing in your new account. However, it’s important to verify that anyone who regularly sends you money -- such as your employer or the Social Security Administration if you’re retired -- has your correct routing and account numbers.

You’ll also want to update your info with companies where you’ve set up autopay for your bills.

How to keep your money safe from a bank failure

The best way to avoid the potential fallout of a bank failure is to verify that your deposits are covered by FDIC or NCUA insurance. Then you should ensure you’re within the $250,000 limit. For example, if you have $325,000 in a savings account, $75,000 of that may not be covered.

However, there are easy ways to qualify for more coverage. If your savings account is a joint account with your spouse, the $250,000 limit doubles to $500,000. Another option is to open multiple account types at multiple institutions.

If you’re a high-net-worth client looking to spread out a large sum of money and ensure it all falls under FDIC coverage, many banks will do the diversifying for you and spread out millions of dollars among a network of insured institutions.

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