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• (Before failure) Decline in services and new offerings: A bank that is on the verge of failing is likely to be in cost-cutting mode, which often means a reduction in staff, services, and new offerings (including other financial product offerings that you may need such as loans).
• (Before failure) Lower interest rates on deposits: The FDIC may apply rate caps for less than well capitalized banks. This has caused several banks to make substantial rate cuts to their reward checking accounts.
• (Before failure) Lower value on brokered CDs: Brokered CDs issued from weak banks are worth less on the secondary market than CDs issued from stronger banks. If you need the money from a brokered CD, it must be sold on the secondary market. You’ll get back less of your money if the brokered CD is from a financially weak bank.
• (Upon failure) Delays in getting your money: If the FDIC or NCUA does not have another institution lined up, you will have to wait up to three weeks for a check in the mail.
• (Upon failure) Fees and hassles: If a bank is closed without another bank assuming the deposits, un-cleared transactions are sent back. This can result in fees, interruption in service, and other problems.
• (Upon failure) CD rate cuts: CD rates are often lowered after a closure. Without a closure, the CD rate lasts until the maturity date. However, when another bank assumes the deposits of a failed bank, the new bank is free to lower the rates on existing CDs.
• (Upon failure) Hassles (or worse) for borrowers: If you are also a borrower with your failed bank, your complications may expand exponentially. At minimum, you can expect your monthly payment procedures and contacts to change (if you don’t shop around and refinance with a new bank altogether). For those that have delinquent loans, lines of credit, or certain types of business loans, the list of new fees, costs, rate changes, and other roadblocks that you may experience can be long and unpleasant!

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

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