5 Things You Should Know If Your Bank Fails

2010 may bring more bank collapses than last year. Here's how to protect your money

3) By law, the acquiring bank can lower the interest rate on your deposit account, but you also have the right to withdraw the money without penalty. Many closed banks had been paying above-market interest rates on CDs (certificates of deposit) and other accounts. If your bank fails and the deposits are acquired by another institution, the accrued interest on your account through the date of the closing will be paid at your same rate. However, after that date, your new bank has the right to reduce interest rates, subject to certain restrictions. In particular, for CDs and other non-transaction accounts, the assuming institution cannot pay a lower interest rate than what it offers to its existing depositors for similar accounts. The assuming institution also must notify you of any changes it intends to make in the interest rate or other terms of your account.

“If you don’t like the new terms offered, the good news is you can close your account without any early withdrawal penalty,” advised Martin Becker, an FDIC Senior Deposit Insurance Specialist. “If you then decide to withdraw the money before maturity, you will receive your principal and the earned interest through the date of failure at your original interest rate, plus you will receive the interest accrued after the date of failure at the lower rate being paid by the acquiring institution.” “Don’t dismiss the new bank just because of the rate reduction,” Kincaid added. “It might offer other FDIC-insured deposit products to your liking or it may offer bank services that you didn’t have before.”

4) In the few instances when the FDIC is unable to find a buyer for the failed bank, depositors will quickly receive a check in the mail for their insured deposits — principal and accrued interest — up to the federal limit. “We try to have a check for the insured amount in the mail within three business days,” said Arthur Cook, an FDIC Resolutions and Closings Manager. If you have money over the federal insurance limit, you become eligible to receive payments of some or all of the uninsured deposits based on how much the FDIC recovers by selling the failed bank’s assets. While that process can take several years, most payments to uninsured depositors are made within a year or two of the bank failure.

5) The FDIC has additional resources you can rely on. Visit the FDIC Web site to find information about your deposit insurance coverage at www.fdic.gov/deposit/deposits and the brochure “When a Bank Fails” at www.fdic.gov/bank/individual/ failed. Or, call the FDIC toll-free at 1-877-ASK-FDIC (1-877-275-3342)

SOURCE: FDIC Consumer News

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