Bank Failures: Protect Your Cash Now

First, I'd resist the urge to rush down to the local branch and wait in a long line as folks did when the FDIC seized IndyMac Bank in July. If your deposits fall within the insurance limits, there is no reason to panic. And if you're over the limits, it's too late to act.

Depending upon the circumstances, uninsured deposits may or may not be accessible right away. But once the FDIC has taken over, that decision has already been made.

According to a recent FDIC consumer newsletter, here is what happens when a bank fails and the FDIC takes over:

In most cases, the FDIC makes insured funds available on the first business day after the bank is closed. And often, funds are available before then through a bank's ATM network, as happened with Integrity this past weekend.

The FDIC tries to find a healthy bank to quickly buy rights to assume the insured deposits. Depositors automatically become customers of the assuming bank, and offices open under the name of the new bank. This is what is happening with the Integrity Bank and its takeover by Regions Bank.

If the FDIC cannot find another bank to buy the insured deposits, one of two things can happen. One, the FDIC can transfer assets to a newly created bank it runs until a buyer is found. The other alternative is the FDIC can issue checks up to the insured limits directly to depositors. That process usually will not take more than three business days, says the FDIC.

Some types of deposits may take longer to deal with. These include accounts linked to a trust, employee benefit plan deposits, and bank CDs bought through a deposit broker.

What happens if your deposits at a failed bank exceed the insurance limits?

You will have access to your funds up to the insured limit, but possibly not the rest. For instance, if you have a single account with $105,000, you have access to $100,000 but the remaining $5,000 may be tied up for up to several years as the FDIC tries to sell the failed bank's assets. And even then, you may not get all your money back.

That's not a chance worth taking. Check now whether your deposits are fully insured, and consider how you might respond if your bank becomes the 11th to fail in 2008.

This work is the opinion of the columnist, and in no way reflects the opinion of ABC News.

David McPherson is founder and principal of Four Ponds Financial Planning ( in Falmouth, Mass. He previously worked as a financial writer and editor for The Providence Journal in Rhode Island. He is a member of the Garrett Planning Network, whose members provide financial advice to clients on an hourly, as-needed basis. Contact McPherson at

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