Bank FailureWhen IndyMac Bank closed, the news featured photos and video of crowds of people waiting outside the bank to withdraw their money. Most of them had less than $100,000 in the bank, and it reopened as a Federal bank the following Monday, so there was really no reason for the rush other than fear. So when should you pull your money out of the bank and when should you avoid the panic and the rush?

Close an Account You Tend to Forget
If you have several small accounts that go long periods without activity, it’s best to close them and move the money to a few larger accounts. States have become more aggressive at shutting down closed accounts and then using the money until you claim it. Why give them a loan?

Close Accounts at Banks in Other States
If you’ve moved permanently out of state and your bank doesn’t have branches where you live, close the account.

Withdraw Funds in Excess of $100,000
One of the main problems with the IndyMac closure was the confusion about FDIC insurance. Some people mistakenly believed they could increase the insurance limit by adding 3rd and 4th people to the accounts but not giving them the full rights to the account. Others thought that business accounts were protected for larger amounts. Still others thought they could open several accounts of the same type and have each insured up to $100,000. According to the FDIC website:

  • Single Accounts are insured up to $100,000 per depositer per bank. So, you can have a savings account and a checking account worth a total of $100,000 combined in order to be fully insured.
  • Joint Accounts are also insured up to $100,000 per depositor per bank. So, if you and your spouse have $150,000 in a joint checking account, and $70,000 in a joint saving account, then you’re only insured up to $200,000. Note, that only authorized users are insured. Account holders in name only aren’t covered.
  • Retirement Accounts (IRAs, Keoughs, and two others) are covered up to $250,000.
  • Revocable Living Trusts are insured up to $100,000 per owner and beneficiary (so a couple with two children would have their trust ensured up to $400,000 if both couples owned the trust and both children were the beneficiaries.)

If you have more than $100,000 in any single bank, withdraw the overage and deposit it in a different financial institution (not just at a different branch of the same bank.) Even if the account isn’t insurable to begin with, I’d worry about having that much cash in any one place and would spread it around to be safe.

If you have less than $100,000, your money is safe and your bank will continue to operate even if the FDIC seizes it. The FDIC typically engineers a sale to another bank quickly, and most people don’t even notice the change.

Withdraw Funds If You Keep Large Amounts in One Bank and It’s Looking Iffy
If you start to hear rumblings about your bank, and you operate a business or keep a large amount of money in the bank, you might want to withdraw it before the bank is seized. You can keep tabs on the safety of your bank with Bankrate’s Safe & Sound ratings. If it has a CAEL rating of 4 or 5, or a Bankrate star rating of 1 or 2, you might want to switch to a different bank.

You should read their full report before rushing to the bank, though. You may decide the low rating is unrelated to their ability to keep your money safe.

The quote I heard most often during the IndyMac collapse was: “I know it’s safe, but I don’t want to take a chance.” They were reacting with fear stoked by dire news warnings rather than knowledge. Two other banks closed that week and the transition was smooth. So, decide know when you should withdraw your money and then stick to it if something happens. If you want more reassurance, use this insurance tool at the FDIC to confirm that your money is safe after a collapse.

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