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Savers might wonder what would become of their High-Yield Savings Account (HYSA) if their bank were to fail. Such fears may not be unfounded as the possibility of a bank’s failure might feel closer than ever before.
The good news is that most HYSAs are insured—as long as you know what to see when you select a provider. Under the right precautions, your cash is safe and covered, even in the worst-case scenario. What happens to your HYSA if the bank fails? In this blog, we’ll discuss how to protect your savings and what you can do in case of bank failure.
How Bank Failures Happen in the Modern Era
Reasons for Bank Failures
Bank failures can happen for several reasons. While rare, they tend to occur when a bank faces significant financial difficulties. Some common causes include:
- Liquidity Issues: Banks must have enough cash on hand to cover customer withdrawals. If a bank runs low on cash reserves, it may struggle to meet obligations.
- Bad Debt: If a bank makes poor loans or investments, it may face losses that weaken its financial position.
- Bank Runs: In the digital age, news of a bank’s struggles can spread quickly, prompting many customers to withdraw funds simultaneously. This sudden spike in withdrawals can push a bank into failure.
Recent examples, such as the collapse of Silicon Valley Bank in 2023, highlight how rapidly a bank can fall due to these factors. Even large institutions, despite their size and reputation, are susceptible to economic shocks.
Why Depositor Protection Is Stronger Than Ever
Although it’s understandable to feel concerned about your bank’s stability, it’s crucial to remember that depositor protection laws have been strengthened over time. In the US, two key protections exist for savers:
- FDIC (Federal Deposit Insurance Corporation) insurance for banks.
- NCUA (National Credit Union Administration) insurance for credit unions.
Both agencies ensure that your deposits—including the funds in your HYSA—are protected up to a certain limit, even if your bank fails. If your bank collapses, you can recover your funds relatively quickly and with minimal hassle.
What FDIC and NCUA Insurance Means for Your HYSA
FDIC Coverage for Banks and NCUA for Credit Unions
If you have an HYSA at an FDIC-insured bank, your deposits are protected up to $250,000 per depositor. This means that if your bank fails, the FDIC will reimburse you for the money you had in your account (up to this amount), including any accrued interest.
The NCUA provides similar coverage for those with credit unions. NCUA insurance also protects deposits up to $250,000 per account holder. It’s important to note that this insurance applies not just to savings accounts but also to checking accounts, CDs, and money market accounts.
What’s Covered?
Here’s the breakdown of what is included in FDIC/NCUA insurance:
- Principal: The original amount you deposited.
- Interest: Any interest earned on your deposit is also covered.
- Coverage Limit: The $250,000 coverage limit is per depositor, per bank or credit union. If you have accounts at multiple institutions, each institution is insured separately.
If partnered with an insured bank or credit union, online-only banks and fintech-linked savings accounts are eligible for FDIC or NCUA insurance.
Step-by-Step: What Happens If Your HYSA Bank Fails?
Understanding what happens during a bank failure can provide significant peace of mind. Here’s what you can expect:
Timeline of a Bank Failure
- Bank Seizure: When a bank is unable to meet its obligations, the FDIC or NCUA may step in and take control of the bank.
- Transition: The FDIC or NCUA will work to either sell the bank’s assets to another financial institution or transfer accounts to another insured bank.
- Payout or Transfer: Once the bank has been taken over, the FDIC or NCUA will facilitate the return or transfer of your funds. If your account is under the insured limit of $250,000, you will generally have access to your funds within a few business days.
How Quickly Are Funds Returned?
In the majority of cases, insured deposits are returned very quickly—typically within 1 to 2 business days. You won’t need to worry about losing access to your savings for weeks or months. While there may be some delays during the transfer process, your principal and interest will be safeguarded by FDIC/NCUA coverage. Interest on your savings will still accrue during the transition period, so you won’t lose the benefits of your high-yield account in the event of failure.
Insured Funds Are Safe—Even if the Bank Disappears Overnight
Even if the bank fails and disappears, the funds you had in your HYSA are insured by the FDIC or NCUA. There are no risks of losing your principal or interest as long as the total amount is under the coverage limit. This makes HYSAs one of the safest places to store money, even in uncertain times.
What If You Have More Than $250,000 in a HYSA?
How to Stay Fully Insured
If you have more than $250,000 in your HYSA, there are ways to protect your savings:
- Structure Accounts Across Multiple Institutions: You can spread your funds across different banks or credit unions to protect your money. For example, if you have $500,000 in savings, you can open two accounts at different FDIC-insured banks, each with a $250,000 deposit.
- Joint Accounts: If you have a joint account with someone, you can increase your insurance coverage to $500,000, as both account holders are covered separately.
- Trust Accounts: If you set up a revocable trust account, you may be able to insure more than $250,000, depending on the number of beneficiaries and other factors.
At Beem, our platform allows you to discover a variety of insured, high-yield savings options. By comparing rates and options, you can ensure your funds are safe and earn a competitive return.
What About Fintechs and HYSA Aggregators?
The Role of Fintechs in HYSA
Many fintech companies, like Beem, partner with traditional banks to offer high-yield savings accounts. This means that even though you’re managing your savings through a digital platform, your account is still insured by the FDIC or NCUA as long as the partner bank is insured. At Beem, we only work with trusted, vetted HYSA providers that meet the highest security and regulatory compliance standards. This ensures that your savings are always protected.
Why It’s Important to Check if Your Account Is Insured
When choosing an HYSA, always check if the underlying account is FDIC- or NCUA-backed. While most reputable fintech platforms work with insured institutions, it’s always worth verifying before opening an account.
Beem’s platform makes this process simple. We list only insured, trusted providers, so you don’t have to worry about doing extensive research yourself. You can trust that every provider on Beem’s platform meets the highest standards of safety and security.
How to Check if Your HYSA Is FDIC or NCUA Insured
Tools and Links for Verification
To verify whether your HYSA is insured, you can use the following tools:
- FDIC BankFind: Visit the FDIC website to search for your bank and check its insurance status.
- NCUA Lookup: If you have a credit union account, use the NCUA’s search tool to confirm whether it’s insured.
By verifying the insurance status, you ensure that your funds are covered in case of a bank failure. At Beem, we take care of this process for you, ensuring that all the recommended savings accounts are insured.
Conclusion
In conclusion, high-yield savings accounts (HYSAs) are an excellent way to grow your savings while keeping your funds secure. Despite concerns about bank failures, most HYSAs are protected by FDIC or NCUA insurance, ensuring that your funds remain safe—even if your bank collapses. If you choose wisely and work with trusted, insured institutions, your money will be protected up to $250,000 per depositor.
Whether you choose an online bank or a neobank like Beem, choose a HYSA that fits how you live, save, and manage your money. Download Beem, the personal finance app trusted by more than 5 million Americans, to open your HYSA, track interest in real time, and connect your savings to smarter money habits. In addition, Beem’s Everdraft™ lets you withdraw up to $1,000 instantly and with no checks.
