What Happens If My Bank Fails?

What Happens If My Bank Fails?

March 31, 2023

What happens if my bank fails? When this occurs, the FDIC provides depositors with an insurance payout. Remember that if your bank is an FDIC-insured institution, you do not need to apply for FDIC insurance because coverage is automatic.

The Purpose of FDIC Insurance

FDIC insurance covers traditional deposit accounts of up to $250,000 per depositor. These traditional deposit accounts include the following:

  • Checking accounts
  • Savings accounts
  • Certificates of deposit (CDs)
  • Money market bank deposit accounts
  • Prepaid cards (assuming they meet all FDIC requirements)

In addition, the FDIC also insures retirement accounts in which plan participants have the right to direct how they invest the money, including:

  • Traditional or Roth Individual Retirement Accounts (IRA) savings accounts
  • 401(k)s or other self-directed defined contribution plans
  • Section 457 deferred compensation plan accounts, whether self-directed or not

The FDIC may also insure an employee benefit plan that is not self-directed, such as a pension plan.

FDIC Insurance Limitations

Now that we understand what FDIC insurance covers let's also look at what it doesn't cover. The FDIC states that it does not cover the following:

  • Stocks
  • Bonds
  • Mutual funds
  • Life insurance policies
  • Annuities
  • Municipal Securities
  • Safety deposit boxes or their contents
  • US Treasury bills, bonds, or notes

If you have any questions regarding your specific investment accounts, I encourage you to reach out to me and we can review them together.