A bank failure means the bank runs out of money and closes, but your deposits up to $250,000 are protected by federal insurance

When a bank fails, it cannot meet its obligations to depositors and creditors. The bank's doors close, regulators take control, and the Federal Deposit Insurance Corporation (FDIC) steps in to pay back depositors. This sounds alarming, but the protection is real: if your account balance is $250,000 or less, you will receive your full balance, typically within a few business days.

Bank failures are rare in the modern U.S. because of strict regulation and deposit insurance. The FDIC has insured deposits since 1933. Between 2008 and 2023, about 560 banks failed in the United States—most during the 2008 financial crisis. In recent years, failures have been uncommon. When they do happen, the process is orderly and your money is protected by law, not by the bank's goodwill.

Key Takeaways

  • The FDIC insures deposits up to $250,000 per depositor, per bank, per account type, so money in a checking account and a savings account at the same bank are insured separately.
  • When a bank fails, the FDIC takes control and either arranges for another bank to buy the failed bank's deposits or pays depositors directly from the insurance fund.
  • You do not need to do anything when a bank fails—the FDIC contacts you automatically and deposits your insured balance into a new account or sends a check.
  • Deposits above $250,000 at a failed bank may be recovered partially or not at all, depending on how much the bank's assets sell for.
  • Not all financial institutions are FDIC-insured; credit unions are insured by the NCUA, and brokerage firms are covered by SIPC, which works differently.

How the FDIC insurance limit works

The $250,000 limit applies per depositor, per bank, per account type. This means if you have $250,000 in a checking account and $250,000 in a savings account at the same bank, both are fully insured because they are different account types. If you have two checking accounts at the same bank, only $250,000 total across both accounts is insured.

Joint accounts are insured separately. If you and your spouse have a joint checking account with $300,000, each of you is insured for $250,000, so the full $300,000 is covered. Retirement accounts (IRAs, SEP-IRAs, and similar) are also insured separately from regular accounts, up to $250,000 each.

Money market accounts, money market deposit accounts, and savings accounts are all treated as the same account type for insurance purposes. Certificates of deposit (CDs) are insured separately if they mature on different dates. A $200,000 CD maturing in 2025 and a $200,000 CD maturing in 2026 at the same bank are both fully insured.

What happens when a bank fails

When a bank fails, federal regulators (usually the FDIC or the Office of the Comptroller of the Currency) close it and take control of its assets. The FDIC then has two main options: arrange for another bank to assume the failed bank's deposits, or pay depositors directly from the FDIC insurance fund.

In most cases, another bank buys the failed bank's deposits. This is faster and cheaper than paying everyone individually. You will receive a notice from the acquiring bank telling you that your account has been transferred. Your account number may change, but your balance and account type remain the same. You can usually access your money within one or two business days, sometimes when ready.

If no bank buys the deposits, the FDIC pays you directly. You will receive a check or a transfer to a temporary account set up by the FDIC. This process typically takes three to five business days, though the FDIC aims to complete it faster. You do not need to file a claim or contact anyone—the FDIC has your information from the bank's records.

What is not covered by FDIC insurance

Deposits above $250,000 at a failed bank are not insured by the FDIC. If you had $300,000 in a checking account, the FDIC covers $250,000 and the remaining $50,000 becomes a claim against the bank's assets. You may recover some or all of it if the bank's assets sell for enough, but there is no may provide. In practice, uninsured depositors often recover 50 to 90 cents per dollar, depending on how much the bank's loans and investments are worth.

Investments held at a bank are not FDIC-insured. If you bought stocks, bonds, or mutual funds through the bank, those are not covered by the FDIC. They may be covered by the Securities Investor Protection Corporation (SIPC) if the bank is a brokerage firm, but SIPC coverage works differently and has its own limits. Ask your bank whether your investments are FDIC-insured or SIPC-covered.

Safe deposit boxes are not insured. If you keep valuables, documents, or jewelry in a safe deposit box and the bank fails, the FDIC does not cover the contents. The bank is responsible for the box itself, but you bear the risk of loss or theft. Some homeowners or renters insurance policies cover safe deposit box contents—check your policy.

Credit unions and other financial institutions

Credit unions are not insured by the FDIC. Instead, they are insured by the National Credit Union Administration (NCUA). The coverage limits are the same—$250,000 per member, per credit union, per account type—and the process is similar. If a credit union fails, the NCUA takes control and either arranges for another credit union to assume the deposits or pays members directly.

Brokerage firms and investment companies are covered by the Securities Investor Protection Corporation (SIPC), not the FDIC. SIPC covers cash and securities held in a brokerage account up to $500,000 per customer, per firm, with a $250,000 limit on cash. SIPC coverage protects you if the brokerage firm fails or goes bankrupt, but not if your investments lose value.

Banks that are not FDIC-insured are rare but do exist. Before opening an account, check the bank's website or call to confirm it is FDIC-insured. You can also search the FDIC's Bank Find tool online to verify that a specific bank is insured.

How to protect yourself from bank failure risk

The simplest protection is to keep deposits under $250,000 at any single bank. If you have more than $250,000, split it across multiple banks or use different account types (checking, savings, retirement accounts) at the same bank, since each type is insured separately.

If you have a very large balance, you can also use a sweep account or a money market fund at a brokerage firm. These services move your money between multiple FDIC-insured banks automatically, so all of it stays insured. Some banks offer this service directly; others require you to use a third-party service. Ask your bank whether it offers sweep accounts.

Check that your bank is FDIC-insured before you open an account. Most large banks and credit unions are insured, but some online banks and smaller institutions may not be. The FDIC's Bank Find tool lets you search by bank name or location to confirm coverage.

What to do if your bank fails

You do not need to do anything when ready. The FDIC will contact you by mail or email with information about your account and how to access your money. If your deposits are under $250,000, you will receive your full balance. If you have deposits above that amount, the FDIC will explain how uninsured deposits are being handled.

If you do not hear from the FDIC or the acquiring bank within a week, contact the FDIC directly. You can call the FDIC's Customer information Group at 1-877-ASK-FDIC (1-877-275-3342) or search for the failed bank on the FDIC website to find contact information. Have your account number and the name of the failed bank ready.

Keep records of your account balance and any transactions at the failed bank. If there is a dispute about your balance, you will need proof. The bank's statements and your own records are the best evidence.

Frequently Asked Questions

Will I lose money if my bank fails?

No, if your balance is $250,000 or less. The FDIC will pay you the full amount. If you have more than $250,000, the amount above $250,000 is at risk, but you may recover some of it from the bank's assets.

How long does it take to get my money back after a bank fails?

Usually one to five business days. If another bank buys the failed bank's deposits, you may have access within one business day. If the FDIC pays you directly, it typically takes three to five business days, though the FDIC aims to be faster.

What if I have multiple accounts at the same bank?

Each account type is insured separately up to $250,000. A checking account and a savings account are separate, so you are insured for $250,000 in each. Two checking accounts are treated as one account type, so $250,000 total covers both.

Are online banks FDIC-insured?

Most online banks are FDIC-insured, but not all. Check the bank's website or use the FDIC's Bank Find tool to confirm. Online banks that are FDIC-insured offer the same protection as traditional banks.

What happens to my credit cards or loans if my bank fails?

Credit cards and loans are separate from deposits. If your bank fails, your credit card account may be transferred to another bank, and you will receive a notice. Your loan terms remain the same. You should continue making payments as usual.