Bank mergers and deposit insurance — December 2010, reviewed January 2013

We have seen a number of bank closures or mergers for a number of reasons.  So how does the FDIC protect customer deposits when two banks become one?

Basic FDIC insurance amount is $250,000 per depositor, per insured bank.  That means that you could have $250,000 at one bank, $250,000 at another bank and be fully insured.  What if the two banks merge? Or, what if one bank fails and is purchased by the other bank?

First of all, remember if the combined balance of all your deposits at the surviving bank is less than $250,000 do not worry.  Your money is fully insured.  And even if the combined total exceeds $250,000, there’s no immediate need to withdraw money or restructure accounts.  The FDIC has a special rule.  It says when two banks merge, a customer’s deposits will be considered to be separately insured for at least six months and possibly longer for certificates of deposit or CD’s.

The depositor has time to review their insurance coverage and options.  With a CD the FDIC allows the insurance coverage to continue until the CD matures so that the CD owner doesn’t have to pay a penalty for early withdrawal.  Only in the future, which may be years, will decisions needs to be made about how to insure the excess above $250,000. 

The CD interest rate could be an issue if a bank fails and is acquired by another bank.  The acquiring bank has the right to lower the CD interest rate that the failed institution was paying.  If that happens, you can move your money to another financial institution without paying an early withdrawal penalty.

The FDIC has more information on their website: www.fdic.gov.  Stay calm if your bank fails but know your rights.