Should you Deposit Money With A Bank in Trouble?

Everyone knows how hard it is to get a decent rate in today’s market. Only a handful of banks offer savings rates greater than 1% APY and CD rates over 2%. So when you see a higher-than-average-rate, it's hard not to jump at the chance to get a good return for your money. After all, deposits are FDIC insured up to $250,000 so you won't lose your money even if the bank fails, as long as you deposit your money in a product that carries FDIC insurance like regular savings accounts and CDs. However, if the bank is in poor financial health, should you still deposit your money there?

The FDIC assures consumers that no depositor has ever lost a penny of insured deposits since the FDIC was created in 1933, so you can be sure that the money you invested in FDIC insured accounts will be protected. However, it may take a few days for you to get your money back.

Depending on how the FDIC chooses to resolve the bank failure, one of two things could happen. The preferred and most common method of resolution involves a healthy bank acquiring the failed bank. In this scenario, the insured deposits of the failed bank become deposits in the acquiring bank and your money is available immediately. When there is no bank acquirer for the deposits, the FDIC will pay the depositor directly by check up to the insured balance in each account. Federal law requires the FDIC to make payments of insured deposit “as soon as possible.” Most payments usually begin within a few days after the bank closing. While the FDIC notes that every bank failure is unique, they follow standard policies and procedures so that most deposit insurance payments are made within two business days of the bank failure.

The reality is that it is safe to deposit money in a bank which is at risk of failure as long as you stay well within FDIC coverage limits. It however is important for consumers to be aware of their bank’s financial health and to understand exactly what their FDIC insurance coverage is. For more information on matters related to holding deposits in a bank that faces possible FDIC seizure, please read this article.

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