Master Your Card

I’ve been getting a lot of questions from people at work about what they should do if their bank collapses. I also had a friend that called me and was freaking out because he banks with Wachovia. So, in light of that and the questions we’ve had here on the board, Jonathan thought a survival guide of sorts might be a good idea. I’m inclined to agree.

Pre-Collapse

This section is about the proactive things you should be doing BEFORE a bank or credit union collapses so that you don’t have to worry about it after the fact.

1.) Make sure you stick to the guidelines.

Know your limits with FDIC and the NCUA. An individual account with either is covered up to $100,000, a joint account is covered up to $200,000, and retirement accounts are covered up to $250,000. For more specifics, check out the websites linked above or review our post about insurance coverage.

2.) Don’t put all of your eggs in one basket.

If you find that you’ve diversified your accounts to the maximum insurance coverage and you still have more money than is covered…first of all, congratulations! On a serious note, don’t feel like you have to keep all of your money at one bank. I mean, I hate it when people take money away from the credit union, but the reality of the situation is that we do tell people to protect their money and if that means you need multiple banks or credit unions to do that with, then so be it. A little advice with this, though. Make sure you have a method of keeping track if you have more than one bank. It can get pretty complicated if you don’t.

3.) Educate yourself about your institution.

Don’t wait until something bad happens before you start questioning your bank or credit union’s policies. Start asking from the beginning. Find out what kind of loans they do, what sorts of investments they have, and what their plans are in the event of a collapse. The employee that you’re asking may not know – which isn’t necessarily a bad thing – so give them the opportunity to find out. If the employee doesn’t seem interested in helping you, or is suspicious of your questions, then you might have grounds to be concerned.

Honestly, there are a lot of employees that come to work, do their jobs, and go home. They don’t want to be bothered with knowing those details about their job. In that case, a manager may be a better person to ask. You can also read your institution’s financial report for more information.

4.) Know your risk tolerance.

I mention this because if you know how you’ll react in the event of a failure, you can save yourself a lot of trouble later on. If you know you’re the type of person that can’t handle a lot of change, then you might want to have an exit plan in mind. For example, if you have direct deposit and a lot of automatic withdraws, it might be prudent for you to keep account numbers and forms on hand in the event you decide to switch institutions. This will save you the hassle of doing it later, and honestly, it’s not really a big deal to switch everything over, it’s just time consuming.

A lot of times, if you have your bills handy, you can take them with you to the bank or credit union and when you open your new account, they will set them up for you on bill pay. Or, in some cases, they’ll have an easy switch kit which will make things fairly simple for you overall. The idea, though, is that if you know you’d leave a bank that was bought out, then have an exit strategy that leads to the path of least resistance.

When Your Bank Fails

1.) Don’t Panic!

This is important. Don’t run into your bank and scream that you want all of your money now and if they don’t give it to you you’re going to rob them. I had someone do this yesterday. The gentleman was quite upset about everything that was going on and just didn’t want his money in the credit union anymore. His story is a horse of a different color, so I won’t go into details; however, the point I’m making is that others in the bank became scared and concerned. There wasn’t a need to be, he was just overreacting based in his fear of the situation.

Causing a run on the bank doesn’t help anyone. If your money is within the FDIC and NCUA guidelines in terms of coverage, then you have nothing to worry about. No one that has been covered by either one has ever lost a dime of their money. Yes, the FDIC fund is running low – which is why they brokered the deals for WaMu and Wachovia to Chase and CitiGroup respectively – however, they are not completely broke and without resources that they can’t give consumer’s their money back.

2.) Find out what the process is.

This may vary slightly from bank to bank depending on the situation and circumstances surrounding the failure. However, it typically works like this. The FDIC or NCUA will cut checks to those who fall within the insurance guidelines first. Those with money outside the insurance guidelines may receive a percentage of their additional funds, some may not. IndyMac was able to pay those who were in excess of their insurance limits 50%. Again, it depends on the bank’s books and what they have to give.

Once that’s been disbursed, then the institution’s assets are liquidated and sold, debts are paid, and then you may or may not get the rest of your money – depending on whether there is anything available to give you after all is said and done. The process does take time and you’re advised that you may not get your money back at all. Calling the FDIC everyday asking about your money isn’t going to help you. I went to a conference where a spokesperson of the FDIC spoke and said that they had someone call them every single day asking where her money was. Don’t do that.

3.) You can stand in line if you want to.

I don’t really advocate this because it’s only going to make you edgy and extremely irritable. Imagine how the employees must be feeling to realize they may not have a job. In IndyMac’s case, those employees had to go looking for a new job. Even in WaMu and Wachovia’s case, some employees will be laid off. They’re not exactly thrilled about the situation either, so there’s no need to go in screaming at them. On top of that, they may not be handing money out at the bank, it may all have to be filtered through the FDIC.

My suggestion would be to call and find out the best way to handle getting your funds. There will usually be an automated message instructing you on what to do, or there will be a number specifically for such an occurrence. But, if you choose to stand in line, remember you’re not the only one dealing with this. You may think this is ridiculous advice in the face of a bank collapsing; however, the situation is bad enough without someone making it worse because of their attitude and behavior.

4.) Learn.

What I mean by this is that if you find yourself in a situation where your bank fails and it is troubling you, then you need to know what to look for the next time around. Find out everything before you sign up with an institution. Compare; and look for more than just rates. A bank may be offering a great rate above the rest of the competition, but there’s a reason they’re doing that. They need the money to pad their deposits to the FDIC. That sort of practice is part of the problem with balance sheets being skewed and the FDIC fund running low. Ask yourself if 25 basis points (or .25%) is worth being with a bank that is risky.

This is my take on it anyway. You may have a better plan of action, but for me, it’s important that you know your institution, you have a plan of action just in case, and you don’t have all of your eggs in one basket.

What about you guys? Anything you think should be added to this list?