What Happens When Your Bank Fails and You Have More Than $250,000 in Savings?

There's a reason it's important to make sure any bank you put money into is FDIC-insured. FDIC insurance protects your deposits of up to $250,000 as an individual, or up to $500,000 for joint account holders. And to be clear, that limit applies on a per-institution basis.

Here's what that means. Let's say you have a savings account with $50,000, two CDs with $100,000 in each, and a checking account with a $5,000 balance for a total of $255,000 all at the same bank. In that case, if you don't have a joint account holder, you're just over that $250,000 limit. So if your bank were to fail, you'd potentially end up losing $5,000. 

But while your deposits in excess of $250,000 aren't protected in theory, they may be protected in actuality if push comes to shove. So if you have more than $250,000 in savings and your bank fails, you're not automatically doomed to lose money.

You could get a lifeline

Earlier this year, when Silicon Valley Bank collapsed, the U.S. government was quick to step in and make depositors whole. A lot of the bank's customers -- notably, businesses -- had funds at Silicon Valley that exceeded $250,000. But ultimately, those who banked there didn't end up losing money.

Now, part of the reason the government stepped in to do that was to avoid a broad bank run and avert a banking industry crisis. If more banks continue to fail, there's no guarantee that the government will step in every time and make sure depositors don't lose any money. And that's important to know.

The best way to protect your money

If you don't want to lose money in the event of a bank failure, there are a couple of steps you'll need to take:

1. Only put your money into FDIC-insured banks
2. Make sure you don't put more than $250,000 into any individual bank

So, let's say you have $250,000 in savings at one bank and you're interested in opening a $20,000 CD after having received a bonus at work of that amount. Rather than let your total deposits at that initial bank reach $270,000, you can simply open your CD at a different institution. That way, all of your money will be safe.

The $250,000 FDIC insurance limit that applies to individuals is on a per-bank basis. This means that for each bank you have accounts with, you get $250,000 worth of protection, provided each bank holds FDIC insurance. 

Of course, many people don't have anywhere close to $250,000 to put in the bank. A recent SecureSave survey found that 67% of Americans couldn't cover a mere $400 emergency expense by pulling from their savings. 

But if you have a large amount of cash you want to keep in the bank, there are steps you can take to secure protection -- even if you're looking to sock away well more than $250,000.