How Long Does the FDIC Have to Pay You Back?
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Over the past couple of years, several readers have asserted that you need to be extra careful in choosing a bank because the FDIC actually has 99 years to pay you back if your bank fails. Sounds scary, but is it true? Not at all.
Under Federal law, the FDIC is required to restore funds “as soon as possible.” Don’t believe me? See 12 USC 1821(f) for details. In practice, the FDIC restores customer funds remarkably quickly, almost always by the next business day.
This 99 year myth is common enough myth that the FDIC actually saw fit to tackle it themselves way back in 2006:
Misconception #3: If a bank fails, the FDIC could take up to 99 years to pay depositors for their insured accounts.
This is a completely false notion that many bank customers have told us they heard from someone attempting to sell them another kind of financial product.
The truth is that federal law requires the FDIC to pay the insured deposits “as soon as possible” after an insured bank fails. Historically, the FDIC pays insured deposits within a few days after a bank closes, usually the next business day. In most cases, the FDIC will provide each depositor with a new account at another insured bank. Or, if arrangements cannot be made with another institution, the FDIC will issue a check to each depositor.
Given that one of the main goals of FDIC insurance is to promote confidence in the banking system, this makes perfect sense. If the FDIC really was entitled to sit on their hands for 99 years, we’d have 1930s-style runs on our banks on a regular basis. After all, what good is an insurance policy that might not even pay out during your lifetime?
Published on May 5th, 2010 - 3 Comments
Filed under: Banking
About the author: Nickel is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!
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May 5th, 2010 at 9:00 am
I had a CD at a bank that failed in Northern Colorado. I got a check in the mail from the FDIC within a week of the initial closure announcement letter.
September 9th, 2010 at 1:40 pm
Thanks so much for this information. It looks like a bank we have a substantial CD with is in serious trouble. To pull the CD out early would invoke a 6 month loss of interest. It won’t mature for 5 more months. But because of this reassurance, I’ll ride it out with the FDIC. Thanks again!
October 18th, 2010 at 2:03 pm
How and where did this misconception of 99 years come from? This seems too blatant for a financial advisor to come up with just for a sale. At one point was this 99 year rule ever considered to be part of the FDIC regulation?