Banks Going Bankrupt – What to Fear and Not to Fear

by Stacy Francis, CFP®, CDFA

My husband called me up yesterday, on the verge of tears. He had just learned that IndyMac had gone bankrupt. We have our Mortgage with IndyMac. Would we lose all our money? Was this the end to our beautiful new condo?

In an economy where banks do go under, I thought I should say something about what to fear and not to fear if this nightmare comes true for you.

1. You should fear losing your automatic bill pay system. While it may sound like no big deal, this may lead to late payments that drag down your credit score, angry phone calls from creditors, and a good deal of chaos and hassle.

2. You should fear having your checks bounce as your bank ceases to stand up for them.

3. You should fear not having access to your cash for a while. A client of mine who used Netbank had her money locked up for more than three months, even though the bank claims all the cash was disbursed without delay.

4. You should fear bureaucracy hell as you try to sort it all out.

On the brighter side . . .

5. You should not fear losing all your money. Since all US bank accounts are insured by an institution called the FDIC, you can rest assured that you will get every dime backup to $100,000.

6. You should not fear having to pay off your mortgage and/or credit card debt in full, like in the old days. Today, your debt will simply be passed on to a different collector.

So, what can you do to reduce fear? One great thing is to have more than one bank account. Banks like Washington Mutual offer free checking, and you can keep your account open with just a buck. If you have more than one account, and hear (or suspect) that your favorite bank is in trouble, you can wire your money out in one day. Another idea is to use a publicly traded bank. That way, you can sign up for news releases and alerts, and keep up to date with its financial health. This will tell you early on if something is wrong, enabling you to act fast.


Stacy Francis, CFP®, CDFA

Stacy Francis is the Founder, CEO and President of Francis Financial, Inc., a Wealth Management and Financial Planning firm. With over 18 years of experience in the financial industry, she is a CERTIFIED FINANCIAL PLANNER™ (CFP®), a Certified Divorce Financial Analyst™ (CDFA™), and a Certified Estate Planning Specialist (CES™). She is the Co-Director of the Association of Divorce Financial Planners’ (ADFP) Greater New York Metro Chapter and a member of the Women Presidents’ Organization (WPO) and an honoree member of the Private Risk Management Association (PRMA). A nationally recognized financial expert, Stacy has appeared on ABC News, CNBC, CNN, PBS Nightly Business Report, The Today Show, Good Morning America, Fine Living Network, and The O’Reilly Factor. Stacy attended the New York University Center for Finance, Law and Taxation.