If My Bank Collapses, How Long Before The FDIC Pays Up?

If your FDIC-insured bank implodes, how long does it take for the FDIC to start paying depositors? Ever since IndyMac imploded, the question has no doubt been on many people’s minds. One reader emailed me saying that he had asked the his banker about how long it might take. Allegedly, the banker squirmed around before finally saying that the FDIC had 20 years to pay people back. This is not true.

In reality, there is no statutory “upper limit” for when they have to pay you back by. Instead, the Federal Deposit Insurance Act states that the FDIC is required to pay insured depositors “as soon as possible.” (see 12 USC 1821(f)) In practice, this usually means the next business day, or within a few days. Here is a relevant section from an FDIC brochure:

When can I expect to receive my money?
Federal law requires the FDIC to make payments of insured deposits “as soon as possible” upon the failure of an insured institution. While every bank failure is unique, there are standard policies and procedures that the FDIC follows in making deposit insurance payments. It is the FDIC’s goal to make deposit insurance payments within two business day of the failure of the insured institution.

Note: Some deposits that require supplemental documentation from the depositors, such as accounts linked to a formal written trust agreement, funds placed by a fiduciary on behalf of an owner such as a deposit broker or deposits placed by an administrator of an employee benefit plan may take a little longer. The timing of the completion of the deposit insurance determination is based solely on the depositor providing the documentation needed by the FDIC to determine insurance coverage.

There’s plenty of things to freak out about in life. The FDIC’s ability to pay you promptly should your FDIC-insured bank kick the bucket is not one of them.

12 USC 1821(f)
When a Bank Fails – Facts for Depositors, Creditors, and Borrowers [FDIC]

(Photo: Ryan McFarland)