When the Bank that Holds Your Certificates of Deposit Fails

June 7th, 2010 | by Allison Thompson |

In 2009, approximately 140 banks failed, which may have you wondering what happens to your certificates of deposit and your other money if your bank goes under. For most holders of certificates of deposit, the bank failure is seamless, so holders of certificates of deposit do not feel the transition from one bank to another. According to a spokesman for the Federal Deposit Insurance Corporation, “The only thing they’re going to notice is their bank has a new name.”

When Banks Fail
When a bank fails, it is common for it to be bought out by another bank. Typically, when the FDIC closes a bank, the bank remains open and operating as the accounts are switched over to the new bank. When you own certificates of deposit held by a bank that has failed, a couple of things can happen. First, the new bank may allow you to cash in the certificates of deposit before their maturity dates. The second option is that typically you can transfer the money in the original certificate of deposit into a new certificate of deposit.
As long as the bank is FDIC-insured, then your cash and certificates of deposit are covered for up to $250,000. Joint accounts receive coverage of up to $500,000. A spokesperson from BankRate says that consumers typically do not have direct contact with the FDIC. The spokesperson shares, “The FDIC literally sends checks to depositors because they couldn’t find any acquiring banks” (addressing how the FDIC coverage works in situations where the banks are not bought out by other banks).

Warning Signs Your Bank is Failing
Luckily, there are some pretty glaring signals you can be on the lookout for that indicates that your bank may be in danger of failing. While the FDIC maintains a list of banks that, in its opinion, are in danger of failing, it does not share this list with the general public. One sign you can watch for is drastic cut of employees or jobs. Shortly before IndyMac went down the tubes it laid off 3,800 employees. Second, if a bank suddenly stops accepting new business for one of its product lines, such as certificates of deposit or loans, then this may be a red flag waiving in your face. If one of these things happens, it shouldnt necessarily send you straight to the bank to withdraw all of your money and cash in your certificates of deposit, but you should be asking some questions to uncover what may be the underlying cause of its options.

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