What to watch for if your bank goes bust

Crumbling bank facade

Regulators have shuttered more than 300 failed banks during the last three years, and there's no reason to think this trend will end soon.

To its credit, the government has been quick to seamlessly close the failed banks and reopen new ones under different ownership.

Customers receive every penny of their FDIC-insured deposits up to $250,000, no questions asked.

But subtle risks to depositors remain.

Here are 3 things to watch for if your institution fails:

The new bank may change deposit rates.

Institutions on the verge of failure often offer higher-than-average returns in a last-ditch effort to attract more deposits. Why? Its leaders hope the money can be invested or loaned to generate the profits it needs to cover losses on all the bad investments and loans that are pushing it toward insolvency.

You'll get to keep interest accrued up to the seizure date, but the new bank is not obligated to honor the high CD rates you had been promised by the failed institution.

Following a failure, look for a letter or e-mail with a new deposit rate schedule. By law, the new institution cannot set rates that are lower than what it pays its current customers. But that's small consolation if the rates are already rock-bottom.

Look for fees or terms to change.

If low fees or easy minimum deposit requirements attracted you to the account, check with the acquiring bank to see if it plans to change the terms and conditions of your deposit account.

Chances are good it will stick with its own terms and conditions instead of honoring the ones at your old bank.

Be especially careful if you bought a certificate of deposit with a generous early withdrawal penalty. That attractive penalty of 90 days' interest could be changed to a hefty one year's worth, making it tougher for you to break your CD.

Special deals or promotions may be canceled.

Banks use all kinds of special promotions to lure in new depositors. If you signed up for an account with a rewards program, perk or incentive tied to it, the new institution isn't like to keep the promotion in place.

There's good news in all of this.

Even if you exceed the FDIC insurance limit, you can still file a claim for the remaining money. It may take months, or even years to collect, but the government track record suggests you'll get back 70% to 80% of all uninsured deposits.

And, more importantly, FDIC rules also allow depositors to close their accounts without paying early withdrawal penalties as long as they don't enter into a new deposit agreement with the acquiring institution. This is an area where savers could actually take advantage of a failure and find better rates for their CDs or money market accounts.

If your bank fails and you get a letter saying your interest rates are being cut or your deposit terms are changing, you need to see if you can find a better deal elsewhere. Our extensive database of the best CD rates is a good place to start looking for rates.

You can also check out a blog like Bankaholic.com to find the best deals out there.