How to Protect Yourself against Bank Failure

With 416 banks on the FDIC’s “troubled list” and 84 bank failures this year, it’s more important than ever to make sure that you are protected in the event that your bank or credit union goes out of business.

It can be very difficult to determine if a bank or credit union is about to fail. An institution that might appear to be perfectly healthy one day could be shut down by federal regulators the next. The only way to protect yourself is to make sure that your funds are protected by the FDIC’s Deposit Insurance Fund or by the NCUA’s Shareholder Insurance Fund (NCUA-SIF).

Currently, both the FDIC and the NCUA insure up to $250,000 for each account holder in a bank or credit union. This insurance limit will drop to $100,000 after 2013. If you and your spouse have a joint account at a bank, that money will be insured up to $500,000. If you have a retirement fund, that may be insured separately from the rest of your accounts and not count toward your $250,000 limit.

The rules for what deposits are covered and what aren’t are rather complicated, so it’s important to make sure that you estimate properly if you have significant sums of money in a bank. You can use the FDIC’s Electronic Deposit Insurance Estimator (EDIE) to determine what type of protection you will have from them. You can also call the FDIC at 1-877-ASK-FDIC (1-877-275-3342) if you have questions about your insurance limits.

The National Credit Union Administration (NCUA) provides a similar tool called the Electronic Share Insurance Calculator (E-SIC) which will help you determine if your credit union deposits are properly insured.

If you find that you have funds that aren’t properly insured by the FDIC, you should move some of them to another bank to drop below the $250,000 limits. You can also look at the Certificate of Deposit Account Registry System (CDARS) to keep large sums of money in savings and ensuring that it is all FDIC insured.

Even if your dollar amount are under the insurance limits and you are well covered, you should still prepare yourself by having a secondary checking account or credit card that you can make use of in the event that your bank fails. When banks fail and another bank takes over their operations, sometimes there can be some transition problems which may inadvertently delay you getting access to your funds. By having a secondary account, you’ll be able to make use of that account while your primary bank gets their act together.