banking

Are Banks Open on New Year’s Day 2017

December 28, 2016 By Alexa Mason 1 Comment

What is and isn’t open can be confusing when it comes to federal holidays. That’s because even though official federal holidays apply to federal agencies, they don’t necessarily apply to private sector companies. It’s up to each company to decide whether or not they want to give their employees the day off, and this often results in a mish-mash of some businesses being open while others are closed.

New Year’s Day lands on a Sunday in 2017, which is a day when almost everything is open, creating a little more confusion. The result is many people have the question, “Are banks and credit unions open on New Year’s Day?” The quick and dirty answer is, “No, they aren’t open,” but there are a number of exceptions to this statement.

Are banks open on New Year’s Day?

No, most banks are closed on New Year’s Day. New Year’s Day is a federal holiday when most banks close their doors for the day. Even TD Bank, the one large bank which sometimes remains open on federal holidays, will be closed to begin the New Year. Additionally, because the holiday falls on a Sunday, banks and credit unions will likely be closed on January 2 (when the holiday is observed) as well.

Are credit unions open on New Year’s Day?

No, most credit unions are closed on New Year’s Day. As with banks, most credit unions close on official federal holiday such as New Year’s Day. If you are to find a bank or credit union open, it will likely be one which is located in a larger retail outlet, such as a grocery store or Walmart. If your credit union does have a presence within supermarkets or other large retails stores, the best course of action is to call your local credit union directly to see if these will be open on January 1.

An important point to remember is that even though banks and credit unions are closed on January 1, 2017, that doesn’t mean you can’t do any banking. In fact, you should be able to do most basic banking services by utilizing the bank’s automatic teller machines (ATMs), banking app or website. These are all available 24 hours a day, even when bank branches happen to be closed, allowing you to do many basic banking transactions.

For those who do utilize these banking tools, you need to realize there are some limitations. Not everything you can do with a teller can be done with ATMs, apps and on the website. Furthermore, some transactions done with these methods may not appear in your account right away. For example, if you decide to deposit a check, it might take until the next business day for the check clearing process to begin. This is important to know if you need the funds right away, as they may not be available as quickly as you may have assumed.

Are Banks and Credit Unions Open New Year’s Eve

Maybe. Because New Year’s Eve falls on a Saturday this year some banks will be closed if they are normally closed on Saturdays. Saturday, December 31, 2016, is not a federal holiday so if your bank has regular Saturday hours they will be open this Saturday. However, some will close earlier than usual so you will want to confirm opening hours if you plan to stop by your institution. Both banks and credit unions will be closed on January 1 and some banks will not reopen until Tuesday, January 3.

The above information is generally accurate, but there are always exceptions to the rule. If you want to be sure, contacting your financial institution directly is the best course of action to take.

How to Apply for a Bank Account

August 17, 2015 By Will Lipovsky 2 Comments

$Getting an American bank account takes a little doing. But don't worry. There are only a few steps between you and your very own bank account. The process for a savings account and checking account are basically the same. It's definitely worth the effort. Choosing the Right Bank Generally, you can choose from big, physical banks (plenty of ATM's, higher fees), online banks (plenty of ATM's, lower fees, no cash deposits) and local credit unions (fewer ATM's, lower fees). Each type of bank has its own benefits and drawbacks. You'll have to decide if the benefits are worthwhile and if the drawbacks are deal breakers. But since many banks are similar, it's probably wise to simply choose what's most convenient for you. You can chase interest rates on your next bank account. Your first account should primarily focus on getting you in the habit of using it. Applying for a Bank Account To apply for a bank account, you'll need your social security number. You'll also need your current address and others where you have lived in the past five years. Other personal information, similar to what you would put on a credit card application will be needed too (like a valid email address). Although you can apply in person in most cases, you can also apply online in most cases. Filling in paper forms is sooo 1999. Considering the sensitivity of your personal financial information, it's important to apply only over a secure internet connection. Make sure the bank you are dealing with is legitimate and FDIC or NCUA insured as well. After submitting the application form, you will usually receive instant approval and account details via email, allowing you to start banking right away. If you have a less-than-stellar banking history, however, you could be denied. Dealing a Negative Banking History Banks use verification services like ChexSystems that work much like credit reports, recording any negative unpaid banking balances or other infractions. Also, if you apply for a new account each year, that may look suspect. You may get denied because of that. Infractions remain on the report for five years. Just as with a credit report, you have a right to obtain a copy of the report and dispute errors. Banks may also check your credit history for signs of fraud or identity theft. If a bank denies your application and you cannot dispute the report. You should ask the bank about a second chance account. These bank accounts usually come with a probationary period that restricts access. Fees are generally higher. But, as with a secured credit card, you should be able to get a full access account within a year. Final Thoughts For most of us, opening a bank account is a simple, straightforward process. Just be sure to choose the right bank for your lifestyle and stay diligent about using it wisely. If you have any problems, ask why. Then ask the personal banker how you can get approved. It may take a little patience but remember, the first time is always the hardest. Your 2nd, 3rd, 4th accounts will be a breeze.$

Getting an American bank account takes a little doing. But don’t worry. There are only a few steps between you and your very own bank account. The process for a savings account and checking account are basically the same. It’s definitely worth the effort.

Choosing the Right Bank

Generally, you can choose from big, physical banks (plenty of ATM’s, higher fees), online banks (plenty of ATM’s, lower fees, no cash deposits) and local credit unions (fewer ATM’s, lower fees). Each type of bank has its own benefits and drawbacks. You’ll have to decide if the benefits are worthwhile and if the drawbacks are deal breakers. But since many banks are similar, it’s probably wise to simply choose what’s most convenient for you. You can chase interest rates on your next bank account. Your first account should primarily focus on getting you in the habit of using it.

Applying for a Bank Account

To apply for a bank account you’ll need to locate a reliable financial institution to supply you with a savings and checking account. When you go in you’ll need your social security number. You’ll also need your current address and others where you have lived in the past five years. Other personal information, similar to what you would put on a credit card application will be needed too (like a valid email address). Although you can apply in person in most cases, you can also apply online in most cases. Filling in paper forms is sooo last century.

Considering the sensitivity of your personal financial information, it’s important to apply only over a secure internet connection. Make sure the bank you are dealing with is legitimate and FDIC or NCUA insured as well.

After submitting the application form, you will usually receive instant approval and account details via email, allowing you to start banking right away. If you have a less-than-stellar banking history, however, you could be denied.

Dealing a Negative Banking History

Banks use verification services like ChexSystems that work much like credit reports, recording any negative unpaid banking balances or other infractions. Also, if you apply for a new account each year, that may look suspect. You may get denied because of that. Infractions remain on the report for five years. Just as with a credit report, you have a right to obtain a copy of the report and dispute errors. Banks may also check your credit history for signs of fraud or identity theft.

If a bank denies your application and you cannot dispute the report. You should ask the bank about a second chance account. These bank accounts usually come with a probationary period that restricts access. Fees are generally higher. But, as with a secured credit card, you should be able to get a full access account within a year.

Final Thoughts

For most of us, opening a bank account is a simple, straightforward process. Just be sure to choose the right bank for your lifestyle and stay diligent about using it wisely. If you have any problems, ask why. Then ask the personal banker how you can get approved. It may take a little patience but remember, the first time is always the hardest. Your 2nd, 3rd, 4th accounts will be a breeze.

Detailed American Express Savings Account Review

July 27, 2015 By Will Lipovsky 1 Comment

That’s right – American Express offers more than just credit cards. They also offer a way to save money – by way of an actual savings account. This was news to me as well until recently.

I want to start this article by saying that this is an article for personal finance perfectionists. Why? Because the interest rate environment is still very poor for us savers. Savings account interest rates don’t vary much. One bank may offer .5% and another .7%. Trying to get the very best rate possible won’t make a difference in your quality of life. However, if you are a savings perfectionist, keep reading. It’s still smart to maximize your dollar. After all, once you get into a high-yield savings account, the income you generating is passive. Passive income is worth the effort to get rolling.

We’ll review this American Express savings account to see what it has to offer. Is it worth leaving the comfort and convenience of your current bank? Let’s see.

Let’s get the deal breakers out of the way…

First off, the account is backed by the FDIC. Should AmEx suddenly file for bankruptcy, you can still get to your money. Second, you do not need an American Express credit card to open a savings account. That’s a relief for those of us who don’t want to apply for yet another credit card. Third, it is an online only bank account. This means you cannot deposit physical money into this account – no way, no how. This means you’ll still need another account for depositing paper checks and cash. Better yet, go electronic. Fourth, the current interest rate (the day this post is being published) on this account is .90% APY. That’s a phenomenal rate by today’s standards. This rate is about competitive as it gets although Ally does offer a slightly better rate at .99% APY.

If you’re anything like me, those were your 4 biggest questions answered. But there are a still a few more issues to cover.

Customer Service

You can reach customer service 24/7 via phone or web. You can also setup alerts so you automatically get notified when something with your account changes – no need to call. Customer service quality appears to be just fine based on the anecdotal evidence to be found on the web. Even if it’s not – you likely won’t need to ever talk with a human being anyway. Remember, this is no brick-and-mortar bank. Online banks save money by not needing to hire staff to field calls. So if you do ever call and wait, understand that this minor inconvenience is how you get such a phenomenal interest rate.

Hidden Fees and Other Annoyances

There are NO fees to open or maintain an account. You only need $1 to open and there’s no minimum balance required. Most high-yield savings accounts require you to keep a minimum amount. This is a hassle but it’s how those other banks make money off your money – they lend it out. It doesn’t do them much good to only lend out $1. However, American Express makes its money off credit cards. They can offer this great rate because of that, apparently. It’s kind of like how the state of Florida doesn’t have state income tax because of the revenue Disney World generates.

Application Process

Applying for this high-yield savings account is as simple as any other.

There are no gotcha’s. I personally haven’t signed up for this account (I use Ally for savings) but I know someone who has gone through the process. He said it’s easy and straightforward. He said it look less than 5 minutes.

Final Thoughts about the American Express High-Yield Savings Account

This savings account is very good. I’ve read about this account for quite a long time and I didn’t uncover anything unsettling. The two competitors in this high-yield savings account world are Ally Bank and American Express. Choose which one works for you. Ally weighs in at a slightly heftier .99% APY. American Express weighs in at .90% APY. Expect a post about the Ally savings account. It’ll get published shortly.

Click here to read 70 customer reviews for the American Express high-yield savings account. Let us know what you decide!

How Long Does it Take for a Check to Clear?

April 1, 2014 By Lori Kelley 4 Comments

It would be nice it there was a standard answer to the questions, “How long does it take a check to clear?” which would be applicable to all banks, but unfortunately, this isn’t the case. Each bank sets the time that a check clears depending on the policies that they have implemented in order to confirm that a check is good. Since these policies vary from bank to bank, the time that it takes for a check to clear also varies from bank to bank.

There are a number of reasons that it can be important to know how long it takes for a check to clear.

Urgent Need

There may be times when you need money for an emergency and are counting on the funds from a check to help out with it. When situations like this occur, there can be a huge difference between a check that clears the next day and one that takes several days to clear.

Money Management

It’s often important to know how much money you actually have in your account when making financial decisions. If you make a financial decision with the assumption that a check will clear in a certain amount of time and it doesn’t, this can cause an number of issues to arise that can cost you money.

Paycheck to Paycheck

Far too many people live paycheck to paycheck with no room for error when it comes to the funds in their bank account. If a check doesn’t clear before a bill comes due, the payment might not go through. In addition, there could be a variety of fees imposed that can make staying above water even more difficult for the person living paycheck to paycheck, especially if a check bounces because they thought the funds from a deposited check would be available before they actually cleared.

For the reasons above, it’s important for most people to understand how long their bank will take to clear a check. The first important step is to understand how to know how much you actually have in your account and how much is still waiting to clear.

When you get a receipt from your bank, it will usually have two numbers: the account balance and the available balance. The available balance is the amount in your account which you are able to spend. The account balance is all the funds that have been deposited into your account, including those checks that have been deposited, but not yet cleared. To figure out how much has not yet cleared, you can subtract the available balance form the account balance.

The reason that the funds aren’t available the moment that you deposit the check into your account is that the bank needs to make sure that the account from the check deposited has the available funds to be transferred into your account. it’s only after the bank can verify that the funds are there and they have been transferred into you account that they become available for you to use.

Again, since it depends on the verification policies of the particular bank, the amount of time it takes for them to confirm the amount is available and clear it as available funds to you will vary from bank to bank. Below you will find the amount of time you can expect a check to clear after you make the deposit from some of the more popular banks in the US:

Bank America will clear checks the same day they’re deposited when deposited before the cut-off time (this time varies and is posted at each branch). If the funds are deposited after the cut-off time, the check will clear the next business day.

Branch Banking and Trust (BB&T)

BB&T has a different set of rules for their own checks and checks from other institutions. Checks from BB&T checking accounts will clear the same day while checks from other institutions will be available the next business day.

Capital One

Capital One clears checks the next business day after the initial deposit as long as they are deposited before 2:00 PM local time. A check deposited after 2:00 PM will clear on the second business day after the deposit.

Chase

Chase will clear checks at midnight for checks deposited before 8:00 PM local time. A check deposited after 8:00 PM will clear at midnight on the following business day after the deposit.

Citibank

Citibank clears checks two to three business days after the check is initially deposited.

PNC Bank

PNC Bank has a different set of rules depending on the age of the bank account. For bank accounts less than 30 days old, the check will clear in two business days. For accounts older than 30 days, a check will clear the next business day.

SunTrust Bank

SunTrust Bank clears checks the next business day after the initial deposit as long as they are deposited before 4:00 PM local time. A check deposited after 4:00 PM will clear on the second business day after the deposit.

TD Bank

TD Bank clears checks the next business day after the initial deposit as long as they are deposited before 8:00 PM Eastern Standard Time. A check deposited after 8:00 PM will clear on the second business day after the deposit.

US Bank

US Bank has a different set of rules depending on the age of the bank account. For bank accounts less than 30 days old, the check may take up to five business days to cleat. For accounts older than 30 days, $200 will be available immediately upon deposit. If the check is for more than that, the remainder of the balance will clear the next business day.

Wells Fargo Bank

Wells Fargo Bank clears checks the next business day after the initial deposit.

The above is all information about how long a check will take to clear when you deposit a check from someone else into your banking account. The question of how long it will take for a check that you wrote to someone else to clear is dependent on their particular bank’s policies. It’s also important to remember that the bank won’t begin the clearing process until your check has been deposited. If the person you give the check to holds onto it and doesn’t take it to their bank, the clearing process won’t begin. This makes it much more difficult to predict when checks that you write will clear than when checks that you deposit will clear.

For more on banks and ways they can help you check out these articles.

What Banks Are Open on Sunday?
Are Credit Unions Better Than Banks?
Best Banks for Student Loan Refinance

(Photo courtesy of DonkeyHotey)

The Importance of Creating a Separate Account for the 52 Week Money Challenge

December 29, 2013 By Jeffrey Strain Leave a Comment

I spent time talking with some friends who attempted the 52 Week Money Challenge last year, but failed to continue it until the end. One reason they failed was because they never took the time to prepare for the challenge. I also noticed that for a lot of them, their failure occurred in how they set up their challenge account. Most who failed did so because they mixed the challenge money in with their regular checking or savings account. While in theory you could do this, I personally see it as being much more difficult. When you mix the two, it’s difficult to know how much money in the account is regular savings, and how much is challenge money. I also think that if you leave it in your regular account, it’s much easier to take the money out and use it than if you create a completely separate account for the challenge.

The other issue that seemed to throw people off on this challenge was what I like to call “phantom savings.” This is where people will do something like skip a cup of coffee and tell themselves that they just saved $4, but then never actually transfer the money into a savings account. They then wonder why all the little things they did to save money over the weeks isn’t in their account at the end of the month. Phantom savings occurs when you think you saved money in your head, but you never put that savings into an account where it can be saved. This is why it’s so vitally important to actually move any money that you save each week into a separate account just for the challenge. If you don’t take this step, your chances of completing the challenge will be much lower.

For these two reasons, I highly recommend that you create a separate and unique account specifically for the money you save for this challenge. There are three basic types that you can create depending on which you feel will work best for you. In many ways, this is a personal choice and you should know yourself well enough to determine which account will work best to ensure that you truly do save the money from the challenge.

Cash

The easiest way to create a separate account would be to keep the money from the challenge in cash at home. The main advantage of this is that you can physically see your challenge savings grow each week as you add more money to it. The growth of the account is also instantaneous in that you can place money into it as soon as you save it. If you keep your money in some type of bank account, you’re likely to only make a deposit into your account once a week.

What makes the cash account easiest is also what probably makes it the most dangerous way to keep the challenge money for most people. With the money right there in front of you, it can be tempting to use it for other purposes rather than save it. You have to be super disciplined not to cheat and use that money for other things. If you’re doing this challenge in an attempt to build your first emergency fund, I wouldn’t recommend a cash savings account. If you know that you have the discipline to keep a large amount of money at home without raiding it, it’s an option.

The other problem with cash is that you won’t be earning any interest on the money. While banking accounts aren’t paying much in interest at the moment, it’s still more than if you keep cash and your challenge money will grow that much more.

Online Bank

A second option is to open an online bank account specifically for the challenge money. While it’s a little bit more difficult to deposit and take out money, this is actually an advantage for most people. You want the money to be available in case of a real emergency, but you don’t want it someplace where you can easily access it without giving it much thought. I think opening up an online account specifically for the challenge is an excellent option.

Credit Union

Another good option is opening a unique account at a credit union. This is especially true if you live in a state where the credit unions offer the Save to Win option. In this case, each $25 you put into the account gives you a chance to win prizes and money while earning interest.

If you don’t currently have an account with a local credit union, this is a perfect opportunity to check them out and see how they can be a lot more advantageous than regular banks when it comes to saving money. A credit union account allows you easy access if you do have an emergency and need the money, but it’s not right at your finger tips so you’re tempted to spend it on other things.

In the end, the main point is that you really need to create some type of separate account where you can physically place the money you save each week. This will keep the challenge honest and ensure that you have the best opportunity of reaching the $1,378 in that account at the end of the year.

I’m still in the process of choosing which type of account I will use. I think if I was only doing this challenge for myself and not writing about it, I would go with an online bank account. Since I am writing about it, I’ll likely start with a cash account and then move to a credit union account after few weeks into the challenge. The main reason for this is that’ll make it much easier to take photos for this challenge with the weekly updates.

(Photo courtesy of Valerie Everett)

Bank Failures: 25 Things Everyone with a Bank Account Needs to Know

August 1, 2013 By Guest Writer 6 Comments

By Patrick Russo

A bank failure regularly occurs when a bank’s assets become less valuable than its liabilities. The value of an institution’s assets can diminish for a number of reasons, including an increase of noncurrent loans, a decrease in deposits, or a decrease in the loan loss allowance amount on its books. Some banks are able to recover before the FDIC (Federal Deposit Insurance Corporation) boards up the windows, but on many occasions the government regulatory agency quickly steps in and closes down operations in an attempt to minimize economic damages. The FDIC has closed 16 banks down so far this year, and so as not to waste an opportunity to learn from these failures, here are 25 lessons you, as a consumer, should take in stride:

Make Sure All of Your Deposits Are Always Insured

The FDIC operates an insurance fund called the Deposit Insurance Fund (DIF), which consists of premiums paid by participating institutions. This fund totaled more than $33 billion at the end of 2012, and is well on its way to a targeted reserve ratio of 1.35 percent of all deposits. In return for premiums paid, each participating bank or savings institution is able to insure each of its individual depositors up to $250,000. The FDIC may insure more than this amount depending on the depositor’s categories of legal ownership (i.e., if a depositor has a single account and a joint account, he or she could be insured for more than $250,000). With such generous coverage, there is little reason to avoid making sure that all of your deposits are always insured. If you are approaching $250,000 across multiple accounts at one bank or think interest earned could soon put you over that amount, check with your bank to see if your ownership categories qualify you for more insurance coverage. If not, you need to begin searching for another bank in order to maintain coverage on any excess amounts.

Spread Deposits Over $250,000 out across Different Banks, not Different Branches

Despite the range of branch locations (and architecture) at some of the bigger banks, don’t confuse different branches for different banks. Even if you spread $25 million out at 10 different branches belonging to the same bank, you could end up with only a fraction of this amount guaranteed by FDIC insurance limits in the event of a bank failure.

Make Sure Your Money is Not ‘Locked Up’

Even if you’ve made sure that all of your money is covered by FDIC insurance limits, if it is all in one account it could still be out of reach for a period of time when the bank fails. This period may only be a few days, but if you have bills, a family, or a business depending on your cash flow provisions, this lack of access could tangle up a few relationships.

Explore Other Account Options Like CDARS

If you have significant liquidity and don’t want to spend all of your time maintaining a large number of bank accounts (what a nice, first world problem!), a CDARS account would be a great way to go. CDARS is a service that places your funds at a variety of different institutions for you in order to take advantage of the market’s best rates and keep your funds always under the FDIC insured limits. You’ll receive consolidated interest payments from the single institution that holds your CDARS account, so it automatically simplifies this investment strategy.

Not Every Failure Means a Systemic Crisis

In the wake of the Cyprus banking default, many news outlets carried stories that magnified the threat of banking failures and depositor losses in the United States. Despite the apocalyptic forewarnings, consumers have seen no real reason for immediate anxiety over the welfare of their deposits. Despite potential long-term regulatory implications for financial institutions in the Eurozone, there is and was never an imminent threat of a domino effect across U.S. banks and credit unions. Just the same, most banking failures that start inside the United States remain very local to the affected institution and rarely have string-like implications.

Greedy Bankers Are Not Always to Blame

While the media tends to fire up the barbecue pit and look for a banker to roast after a failure (the bigger the bank, the hotter the fire), bank leadership and equity owners are not necessarily the culprits. Instead, the causes of a bank’s failure are usually complicated and not readily identifiable because of bigger market factors like shifts in housing prices or changing industry regulations. The 2008 banking collapse was a combination of regulatory error and willful ignorance at the tops of big banks.

No Size is Immune

Big and small, tall and large, wide and skinny, banks of all shapes and sizes are susceptible to failure. More assets do not necessarily mean more security when it comes to bank insolvency. Washington Mutual had over $100 billion in deposits when the FDIC brought it into receivership in 2008. On the other hand, Sunrise Bank, which failed this year, had less than $60 million in deposits.

Banks Are Usually Closed Quietly

Unlike the case of IndyMac’s bankruptcy, most bank failures happen quietly by design. The FDIC’s ideal bank closure process consists of the agency closing down the bank on a Friday, reorganizing it over the weekend, and handing it over to new ownership on Monday. After a letter was publicized from a United States Senator about the likelihood of IndyMac going bankrupt, depositors began quickly retrieving their funds. This semi-panic forced the FDIC to take over the bank instead of giving it time to recover.

Pay Attention to Bank Health Ratings and Texas Ratios

While it’s true that bank failures often come as a surprise, regularly monitoring a Bank Health Ratings and Texas Ratio list will give you a good grasp of whether a bank is thriving or surviving. As a bank’s number approaches 100%, it becomes more likely to end up insolvent, and you could end up with more of a headache tracking reassigned loans or waiting for a check from the FDIC for your deposits.

The FDIC Keeps its List of Troubled Banks “Hush-Hush”

The FDIC maintains a list of troubled banks that are at risk of becoming insolvent in the near future. This list is kept hidden from the public so as not to incite consumer panic resulting in a run on the bank. Though depositors won’t get to see how close to the brink their bank is in the government’s eyes, the above Bank Health Ratings will help give a fair idea.

Be Prepared to Lose Those Nice CD Rates

In the current low rate banking environment, any long-term, high rate CDs you have will likely evaporate should the bank fail. This loss should come as no surprise but could be untimely if you were counting on the interest of a particular CD for another year or two.

Go Look for Better Banks Once Yours Fails

If your bank does fail, and the acquiring bank’s new accounts are disappointing, use the wide array of tools on the Internet to search for better options. Internet banks are offering competitive rates, as well as credit unions, and these institutions are making it easier and easier for you to find them.

Federal and State Tax Revenues Are Not the Source of FDIC Insurance Funding

When the FDIC is forced to reach into its Deposit Insurance Fund for funds to cover the losses resulting from a failed bank, it is not reaching for tax revenues collected from citizens. As mentioned above, insured banks pay the premiums that make up most of the FDIC’s insurance fund. Additionally, the FDIC has an investment portfolio of U.S. Treasury securities, the interest earnings of which are also deposited into the fund.

Interest Accruing on Deposits Stops as Soon as the Bank is Closed

The traditional deposit accounts insured by the FDIC are checking, savings, Money Market, and Certificate of Deposit (CD) accounts. Depending on the banking institution, most of these accounts will bear recurring interest commensurate with the amount deposited by the consumer, and for term lengths determined by the type of account. After a bank fails and is closed by the FDIC, the rate of interest formerly guaranteed by the failed bank is no longer effective. The bank or financial institution acquiring the failed bank’s assets and/or loans has the choice to maintain the previous interest rates or else determine new rates. Depending on the position of the acquiring bank, those rates could be higher or lower, but the bank is under no obligation to uphold a previous rate of interest. All interest accrued up until the point of the bank closing is secured by the FDIC insurance fund up to the insurance limit.

No Buyer Means You’re Probably Going to Lose Interest

In most cases, the FDIC is able to find and arrange for another institution to purchase the assets and deposits of a failed bank. However, from time to time there is a lag between failure and acquisition that could cost you interest earnings. The “in-between” could be as long as a week or two, and that could mean significant interest depending on the size of your account.

Outstanding Checks May Be Returned

If you have written checks from your checking account to businesses or vendors that have not been cashed at the time your bank is closed due to failure, they will all be returned if the FDIC can’t find a buyer. This return is because the FDIC will send you a check for the amount of funds in your checking account at the time the bank closes and they won’t make sure all of your outstanding checks are paid.

Brokered CDs Take Longer to Transfer, If They Transfer at All

If you own a CD that was purchased through a broker rather than directly from the bank itself, it might take a while to transfer from the failed bank to the acquiring one. In many cases, the acquiring bank won’t assume the CD because they want the customer purchase one directly from them.

Depositors, by Law, Have Top Priority to a Failed Bank’s Liquidated Assets

If you are a depositor with over the FDIC insured amount in a particular bank when it fails, you are in the best position to recover all of your money. By law, insured depositors receive payments from the failed bank’s liquidated assets first, followed by uninsured depositors, general creditors, and then stockholders. If you have the opportunity to become a stockholder in a banking institution, the Bank Health Ratings list mentioned above is mandatory research before moving forward.

Loans Don’t Go Away, but Can Be Helpful Cushions

If the bank holding your loan fails, the debt doesn’t just go away, unfortunately (if only consumers had the luxury akin to a retail store when a customer loses a gift card). The bank that ultimately assumes (or buys) your loan will send you a notice of where to send future payments. The good news is that if you were in the rare situation where your deposits at the same failed bank totaled over FDIC insurance limits, you may apply the excess to your loan balance and avoid the possibility of it blowing away like chaff in the wind.

Stocks, Bonds, Mutual Funds, and Safe Deposit Boxes

Though it is becoming more difficult in the Volcker Rule banking age to invest in securities through FDIC-insured banks, there are still institutions that maintain a brokerage arm off of their banking business through which they sell securities, or other non-deposit investment products, to consumers. It is important to know the difference between the various types of accounts that may be associated with a single banking institution. The FDIC does not insure stocks, bonds, mutual funds, or safe deposit boxes against a bank’s failure. This insurance function is provided by a non-governmental organization called SIPC (the Securities Investors Protection Corporation).

ATMs Still Work in the Midst of a Bank’s Closing

ATM transactions that you perform during the time between your bank being closed and reorganized (by the FDIC or the acquiring bank) won’t post immediately because the ATMs are taken offline for processing by the FDIC. Upon the bank’s reopening, all of the transactions you completed via an ATM will be updated to your account.

Online Banking Doesn’t Always Work

Online banking services, however, could be closed during the failed bank’s transition. In the case of an Internet bank failing, consumers with deposits held by the bank may be more limited in the account management tasks they can perform. The FDIC does try to make sure web-based banking services associated with a failed bank remain continuously available.

Services and Accounts That Automatically Transfer to the Acquiring Bank

Despite the possibility of your bank failing becoming a headache, there are a few automatic transfers that will prevent your “to do” list from getting any longer. If you had automatic payments, loan payments, or direct deposits for your paycheck scheduled to occur regularly, those services will continue without you lifting a finger. Any trust accounts held at the failed institution will also be automatically transferred to the acquiring institution.

Though Bank Failures Make More Headlines, Credit Unions Fail As Well

The NCUA is the credit union version of the FDIC and functions in much the same way when a credit union becomes insolvent. Credit unions have a few more exemptions in the tax arena than banks, but they aren’t necessarily a safer place to hide from institutional failure. The NCUA’s guidelines for insurance coverage are similar to the FDIC and have insurance limits of $250,000 per member, which could be more depending on the type of account ownership.

Be Thankful for FDIC and NCUA Insurance

Finally, if you are one of the millions of beneficiaries of the insurance provided by the FDIC or NCUA, be thankful that not one dime of insured deposits have gone unpaid. While every system has its limitations and imperfections, it is a good thing that consumers don’t have to constantly think about how to secure all of their money.

Should you take advantage of the above lessons, you’ll be better prepared for and know how to respond when your bank is in the headlines for “Latest Failure”. Hopefully, though, some of the tools introduced will help you avoid such a scenario altogether. Check out more tools and lists on the failed banks page of the FDIC.

Patrick Russo writes for DepositAccounts.com, a website that monitors products and rates at more than 7,500 banks and credit unions and pairs that information with comprehensive commentary, reviews, tools, and community forums to equip and guide depository banking consumers.

(Photo courtesy of Andy Hawkins)