What Happens to Your Money if Your Bank Fails?

Jenny Rose Spaudo  Wed, February 22, 2023

Many of you might wonder what banks do with your money while it’s sitting in your account. But how many of you know what happens to it when a bank has to close down?

Thankfully, bank failure isn’t something that happens often. According to the Federal Deposit Insurance Corporation (FDIC), there have been 561 total bank failures from 2001 through 2022. The majority took place during the recession from 2008 through 2011, but zero occurred in 2021 and 2022.

However, just because most people’s banks don’t fail doesn’t mean it can’t or won’t happen to you. So what happens to your money in that case? And what can you do to avoid the risks of bank failure? Here’s what the experts have to say.

What Happens When a Bank Fails

The vast majority of banks are insured by the FDIC, although some choose smaller deposit insurers. If an FDIC-insured bank fails, the government-backed agency protects consumers’ money by selling the bank to another financial institution or paying depositors directly up to $250,000.

If your bank is sold, your money is typically available in your new account within two business days and your terms and conditions stay the same, said Levon Galstyan, CPA at Oak View Law Group.

“However, it may take longer if a large number of depositors are affected by the bank’s failure,” he added.

Direct Deposits, Pending Transactions and Bills After a Bank Failure

What if you have direct deposits set up through your current employer? If your bank is acquired, you shouldn’t need to take any action. Your deposits should be redirected automatically to your account at your new bank.

However, if there’s a delay and your accounts aren’t immediately transferred to another bank, you might need to reach out to your employer and have them temporarily redirect your paycheck to another account.

“In any case, it’s a good idea to keep track of your direct deposit information and to update it as necessary if you change banks or if there are any changes to your bank account information,” said Galstyan. “This can help ensure that your direct deposits continue to be credited to the correct account and that you have access to your funds in a timely manner.”

Keep in mind that direct deposits and pending transactions differ during a bank failure.

To continue reading, please go to the original article here:

https://finance.yahoo.com/news/happens-money-bank-fails-154603575.html