Money Market Accounts And Cds In A Failed Bank

Having money market accounts and CDs in a failed bank can prove to be disconcerting

for account holders, especially as they may not have access to these investments should a bank fail and be taken over by the government or bought out by another bank. The lack of access can cause many to write off their investments as losses if they do not know how these investments are held and transferred in case the transition of ownership happens.

Money Market Accounts

Money market accounts come in various kinds, which may result in the ignorance of consumers as to whether or not theirs are FDIC-insured - this statement comes from Safran Wealth Advisors financial planner Erika Safran. One type of money market account is very similar to a savings account, and earns based on the interest rate the bank has set. The customer is typically limited to a specific number of transactions in a certain period, and usually receives insurance coverage to a maximum of $250,000.

Another type of money market account, the money market mutual fund, may have a roster of investments composed mainly of short-term Certificates of Deposit or securities like T-bills, corporate bonds, and government bonds. These investments are debt-based, and held in mutual funds, making them unqualified for FDIC insurance.

If you have money market accounts that are insured, chances are that you will lose access to funds for less than a week, after which you can access your accounts or funds like you were able to prior to the transition. What could change if your bank is bought out are the interest rates, usually implemented as soon as the new bank has finished the takeover process.

Money market mutual funds that are uninsured work similarly to insured money market accounts, with the period of non-access to funds being the main difference. In this case, Novantas LLC managing director Kenneth Alverson states that you may wait longer to get your access reinstated, and that the waiting time depends on the bank buyer and what they do with the purchased bank.

Certificates of Deposit

If you have a CD in a failed bank, you will have account insurance of up to a quarter of a million from the FDIC, much like savings accounts, checking accounts, and money market accounts. Time-deposit certificates at failed banks do not change in terms of the maturity period, and will reach maturity when the original contract says so because it is set by law. Owners of CDs from banks taken over by the government or another bank should not worry too much about their investments. Holders of money market accounts and CDs in a failed bank will usually suffer very little to no financial losses.

by: Katherine Smith

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