How to Deal When Your Savings Bank Fails


Your savings bank goes kaput. (Like Ameribank Inc. in Northfork W.Va.)

What happens to your monthly direct deposits and your ATM card? Are they still valid? It’s the little things that count, so MainStreet dug around for the details ahead of the next bank failure, be it Washington Mutual (STOCK QUOTE: WM) or any local FDIC insured bank.


IT’S BUSINESS AS USUAL…for the most part
While folks may describe a bank failure as bankruptcy, the Federal Deposit Insurance Corporation, or FDIC , prefers to say that “a bank is closed by its chartering authority and the FDIC is named receiver.” That sounds like a lot of jargon, but what it essentially means is that our money is protected by the FDIC. (Our deposits are secure up to $100,000 per individual per account.)

More importantly, the FDIC’s main mission is to make sure banking services continue.  To do that, the group aims to rapidly find an acquiring bank for the failed bank so that depositors don’t experience any delays or glitches in their day-to-day banking needs, both online and off.  Assuming the FDIC finds another bank to relieve the failed bank, your scheduled direct deposits will transfer as they did in the past. Your ATM card will still be valid and accepted at your usual ATM machine, says Tibby Ford, spokesperson for the FDIC. 

Since 2003, of the 22 bank resolutions, there was just one instance where the FDIC was not able to find an acquirer for a failed bank and had to pay out the depositors itself.  In that event, banking services, like our ATM card and bank branches, will likely shut down.  We won’t face ATM fees because, well, we can’t use our ATM cards.  Instead, we need to wait for the FDIC to send our deposits back to us via check. Still, we can expect prompt service in that scenario.  “We try to make the payments the next business day,” says Ford.  

As soon as a bank is acquired, the new ownership can announce new interest rates and fees on financial products.  “Basically the minute the acquisition of deposits occurs, the acquirer can reestablish interest rates.” It’s up to us to keep aware. Technically, the new bank needs to inform its depositors through the mail, but that may take some time. “You have to be more proactive,” says Ford. Check on the bank's Web site or call a bank representative to get caught up. She adds that during the transition, when available, the FDIC will post important bank service changes on its Web site.  In addition, don’t get rid of any old bank paperwork that states your current balance and investments. If there are any discrepancies that pop up after the acquisition, you can defend your records.  “Definitely keep track of everything," says Tracy Mills of the Consumer Bankers Association. "That should be an automatic thing to do,”

In some cases, changes installed by the acquiring bank may cost us money, but then there are protections in place in that event. For example, if the acquiring bank chooses to reduce the saving rates on certain products, our 12-month CD for example, we have the right to liquidate that CD early without a penalty, says Ford.

Catch more of Farnoosh’s advice on Real Simple. Real Life. on TLC, Friday nights at 8 p.m.

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