What Happens to My Savings or CD If My Bank Fails?

By Sabrina Karl

The chances of a bank failure are extremely slim these days. And the odds of your bank being seized are even more miniscule. Still, if you wonder what would happen to your deposits should that unlikely event take place, it’s easy to set your mind at ease. 

First, let’s look at the narrow odds of this happening. True, in the five years following the 2008 financial crisis, 465 banks were shuttered. But as we know, those were historically unique circumstances. In contrast, annual bank failures have numbered in only the single digits for the past three years, and so far in 2018, not a single bank has been closed by the Fed. 

With the U.S. having almost 8,000 operating banks, if eight closed in a year, that would represent just one-tenth of one percent, or a 99.9 percent “safe” rate.

But what happens to your funds if you do bank at a failed institution? The good news is that, assuming the bank is FDIC insured (the vast majority are) and you don’t hold more than $250,000 at that bank, the federal government ensures will not lose your funds or any earned interest.

That said, your deposit terms will likely change, as dictated by the bank that took over your bank. This comes into play most significantly with CDs, where the new bank is likely to offer you the choice of exiting the CD with no penalty, or continuing at a new (likely lower) interest rate.

All this means that your biggest risk will be losing an attractive rate, if you were receiving one. But since you’ll be allowed to exit your CD, and since savings, checking and money market funds can be withdrawn at any time, you’re free to shop around and take your money where you can earn more.