When an FDIC-insured bank fails, all customers quickly receive their insured deposits, including any interest they've earned, up to the federal insurance limit.

The FDIC makes sure depositors receive their insured funds promptly when a bank fails. Here a representative meets with customers and answers their questions. Photo by Bill Archer

Federal law requires the FDIC to pay all insured deposits "as soon as possible" after an insured institution fails. In practice, the FDIC pays depositors within a few days, usually the next business day. "FDIC staff does whatever it takes – often working long into the night or the weekend – reviewing thousands of account balances and determining the insurance coverage for each depositor," said Michael Spaid, who manages an FDIC section that develops policies for handling deposit insurance claims.

In most cases, the FDIC provides access to accounts on the next business day by arranging with a healthy institution to assume the insured deposits. The account owners can then decide whether to remain as customers of the other bank or move their money elsewhere. With certain types of deposits, such as living trust accounts (see Know Your Limits: Why, When and How to Be Sure You're Fully Protected by FDIC Insurance) and deposits placed through brokers, the FDIC may need more time to finalize the insurance payment but usually no more than a week or two.

If the FDIC cannot find another institution to assume the failed bank's accounts, the FDIC will issue checks to depositors in amounts up to the federal insurance limit. That process can take longer than one business day but usually not more than three business days.

Spaid added that by paying failed-bank depositors quickly, the FDIC enables consumers and businesses to continue handling their day-to-day financial affairs with little or no delay, inconveniences or hardships, "and that is essential to maintaining consumer confidence in banks, which keeps local economies running smoothly, especially in small communities."