What Happens When a Bank Fails? How FDIC Insurance Protects Your Money

When a bank fails, the Federal Deposit Insurance Corporation (FDIC) steps in. Since the FDIC was created in 1933, no depositor has lost a cent of insured funds. Understanding the limits helps you keep all of your money protected.

How much is covered

Standard coverage is $250,000 per depositor, per insured bank, per ownership category. Credit unions have equivalent protection through the National Credit Union Administration (NCUA).

Ownership categories can multiply coverage

• Single accounts: owned by one person, up to $250,000 combined at one bank.
• Joint accounts: each co-owner is insured up to $250,000 for their share.
• Certain retirement accounts such as IRAs: insured separately up to $250,000.
• Trust accounts: coverage depends on the number of beneficiaries, subject to limits.

What is covered and what is not

Checking, savings, money market deposit accounts and CDs are covered. Stocks, bonds, mutual funds, crypto, annuities and safe deposit box contents are not covered by FDIC insurance, even if bought through a bank.

What happens on the day a bank fails

Usually the FDIC arranges for a healthy bank to take over the failed bank's deposits, often over a weekend, and customers keep using their accounts and cards. If no buyer is found, the FDIC pays insured depositors directly, typically within a few business days.

Protect yourself

1. Confirm your bank is FDIC-insured using the FDIC's BankFind tool.
2. If your balances exceed the limit, spread them across banks or ownership categories.
3. Use the FDIC's Electronic Deposit Insurance Estimator (EDIE) to check your coverage.
4. Be careful with fintech apps: your money is only insured if it is held at an insured partner bank.

The bottom line: keep each pool of money under the insured limit and verify your institution, and a bank failure should be an inconvenience, not a loss.

This guide is for general information only and is not financial advice. See our Disclaimer.