by Kimberly Schiller

Created on: October 30, 2009   Last Updated: January 07, 2010

It seems as if news breaks every week of another bank suddenly closing its doors. As of October 29, 2009, 106 banks have failed in 2009. To put that in perspective, 27 banks failed in 2008 and 3 banks failed in 2007! As we watch footage of the bank customers being interviewed outside their branch, it's hard not to wonder if it could happen to you. What happens when your bank closes?

The impression that banks close without warning is incorrect. While the government is well aware of banks that are struggling, if they released this information it could cause consumers to withdraw their money and make it impossible for the bank to recover. An announcement is made the same day a bank closes, and notices are posted at every branch location. These notices tell customers that the bank closed, what institution is now holding their accounts, and any other information they may need.

Luckily, the FDIC is usually able to find another bank to purchase the failed bank's accounts immediately. In fact, most banks reopen the next business day! According to the spokesman for the FDIC David Barr, "In most cases, the average customer probably wouldn't even know that their bank was closed if an announcement wasn't made. The bank usually closed on a Friday and reopens on Monday."

When a buyer is found for a failed bank, the effect on customers is minimal. Your branch opens the next day, often with the same employees, and business continues as usual. Even in those overnight hours, your ATM card will work and your checks will clear. Sometimes, the new bank will choose not to buy any bad debt, like delinquent credit cards or loans. In this case, the government will either administer those items themselves or sell to another party. Either way, you should continue paying your debts as scheduled until you receive notice of new information.

If a buyer cannot be found for the failed bank, the situation becomes trickier. The FDIC insurance on personal accounts currently covers up to $250,000. If your deposits are less than that, your money is safe, but will be unavailable for a few days. The FDIC will send out a check for the value of your account within two business days. Unfortunately, you won't be able to make ATM withdrawals in the meantime, and any outstanding checks you wrote will be returned as "Bank Closed". These returned checks are not supposed to be reported as delinquent to the credit bureaus, but it's your responsibility to arrange for another method of payment in a timely fashion.

• 1
• 2
• Next Page >>