Is It Possible For A Bank To Go Out Of Business, Leaving You Without Your Money?

Is it possible for a bank to go out of business, leaving you without your money? Insured financial products include checking and savings accounts, as well as money market deposit accounts and certificates of deposit.

Many people wonder if they could lose their money if their bank goes out of business. Back in 1864 when the national banking system was established with the National Bank Act, it was possible to lose your money. Most people did not realize this but during the Great Depression of the 1920s and early 30s, thousands of banks and thrifts went out of business. Everyone lost their money and trust in the banking system.

To restore faith in the national banking system, the United States government passed the Banking Act of 1933, which established the Federal Deposit Insurance Corporation as a temporary agency. A later Act of 1935 made the FDIC a permanent part of the government. The mission of the FDIC is to insure the deposits of customers in accredited financial institutions, up to $100,000. Once the FDIC started work, no customer has lost any insured money. Covered financial products include checking and savings accounts, as well as money market deposit accounts and certificates of deposit.

It still took some time for the public to regain their confidence in the banking system after the Acts. Banks in the FDIC system were very cautious in the early years. It would have been impossible to separate out the deposit insurance system from the general economic conditions of the time. The Great Depression caused banks to spend many years focusing on their liquidity and build up of their assets.

"The FDIC guarantee prevents this from happening for most people. If you or your family's deposit accounts total $100,000 or less, your funds are totally insured," says Sharon Lee, the Executive Vice President and Director of Client Services of American National Bank, who has thirty years in the banking industry. "Amounts above that amount may be at risk if a bank fails. There are ways to increase the FDIC coverage on depositor's accounts based on the ownership of the accounts, so if this is a concern the customer needs to talk to their banker," said Lee.

If you have questions, about which products you sign up for or purchase, the FDIC has a well-written website with all kinds of information. There are even calculators for figuring out how much and which of your accounts are insured. They list products such as mutual funds and annuities that are not insured by the Federal Deposit Insurance Corporation. The FDIC wants you to know that not all products offered by your banking institution are federally insured. They have issued guidelines for banks to follow in providing full information about their products.

The FDIC has over 5,300 member institutions that they supervise and examine on a regular basis. If the bank is national, it is part of the Federal Deposit Insurance Corporation. State chartered bank have the choice to join the FDIC if they do not wish to be part of the Federal Reserve System. The premiums that member banks pay fund the FDIC. This is in part because the Federal Deposit Insurance Corporation does not receive any Congressional appropriations. The FDIC also earns money from its investments in U.S. Treasury securities.

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