If your bank fails, the first thing to keep in mind is that you won’t lose all your deposits. The Federal Deposit Insurance Corp. (FDIC) insures bank accounts up to $250,000 per depositor, per account category. So, unless your bank is not insured by the FDIC or you have deposited more than the FDIC limit, your money is safe if your bank fails.

The FDIC will notify you in the case of a bank failure, like the Silicon Valley Bank and Signature Bank closures in March 2023. Your insured deposits will either be moved to another FDIC-insured bank or paid out to you.

Learn more about why banks fail, how FDIC insurance works to help you recoup your money, and how to protect your finances.

Why Do Banks Fail?

Banks typically fail when they become insolvent, or when the value of their assets drop to levels below what they owe to creditors and depositors. 

Banks do not keep in a vault all of the cash that is deposited. Instead, those funds are lent out to other customers or used to make investments. Banks can become insolvent, for example, if they make risky investments and market conditions cause them to lose money, or if they lend to people or businesses that don’t meet their obligations. 

So, What Does Happen If My Bank Fails?

Once a bank can no longer afford to make good on its obligations to customers and creditors, the FDIC steps in. Here’s what typically happens.

1. The FDIC announces that the bank is closed, and the FDIC is appointed as its receiver so it can help use the bank’s assets to pay depositors and creditors. 
2. In most cases, the FDIC will try to find another banking institution to acquire the failed bank. If that happens, customers’ accounts will simply transfer over to the new bank. You will get information about the transition, and you will likely get new debit cards and checks (if applicable).
3. If another bank doesn’t take over the assets, the FDIC will send depositors a reimbursement check “as soon as possible.”
4. The FDIC is not obligated to return funds beyond the $250,000 that is insured, but you still have some recourse if you’ve had more than that in an account category. First, you can request a receiver’s certificate, which lets you claim your funds when the bank’s assets are liquidated.

Examples of Bank Failures 

Bank failures are a lot less common since the FDIC started operation in 1934. Before that, thousands of banks failed during the Great Depression—4,000 in 1933 alone. But bank failures still occur. In some cases, broader market trends can trigger bank failures, such as when 25 banks failed in 2008 amid the housing crisis. Banks can fail for other reasons as well, such as internal mismanagement.

Let’s look at some notable bank failures:

• Silicon Valley Bank and Signature Bank: In what many news outlets called the first social media bank run, Silicon Valley Bank and Signature Bank abruptly closed in 2023. News of their financial troubles spread on platforms like Twitter (now X), causing customers to panic and pull their money.
• The largest bank failure: Washington Mutual (WaMu) is the largest bank failure in terms of assets. The bank collapsed during the 2008 financial crisis at a time when it had $307 billion in assets. JPMorgan Chase took over WaMu.
• The last big in-person bank run: Continental Illinois National Bank and Trust Co. was one of the largest U.S. banks when it found itself in financial trouble in 1984. When rumors began to spread, there was a run on deposits at the bank’s branches. Depositors withdrew $10.8 billion.

Do You Lose Any Money If Your Bank Closes?

If your deposits are under the FDIC insurance limits ($250,000 per depositor, per ownership type), then you won’t lose any money if your bank closes. But it’s important to understand what types of accounts are insured, and what the limit means.

You also need to pay attention to ownership categories.

What If You Have Multiple Accounts?

If you have multiple accounts at one bank, such as an individual checking account and savings account in the same bank with a total of $300,000, then FDIC insurance won’t fully protect you. It only insures up to $250,000 per depositor per account ownership type. You could lose $50,000 because, in this case, the accounts are in the same ownership category.

However, if you had a joint checking account with your spouse and your own savings account, then FDIC insurance would fully protect you because joint accounts and individual accounts are two different ownership categories.

Even if you had more than the $250,000 limit deposited, you might not lose any of your funds. If another bank takes over, your money will simply transfer there. An example of this can be seen in the failure of First Republic Bank and its subsequent purchase by JP Morgan Chase in May of 2023. If not, the federal government may cover the remainder of your funds, as it offered to do after the Signature Bank and Silicon Valley Bank failures. Ultimately, all customer assets were protected when Flagstar Bank took over Signature Bank, and First Citizens Bank & Trust Co. took over Silicon Valley Bank.

The Bottom Line

Though bank failures get a lot of media attention, customer finances are usually not severely impacted. As long as you do business with an FDIC-insured institution and keep less than $250,000 per account ownership category, your funds will be safe if your bank fails. However, you might face some minor inconveniences, such as waiting for a new debit card or updating your automatic payments.