What to Do When Your Online Bank Goes Under

Finding out that your online bank has failed isn't exactly the greatest news, but online or traditional bank failures in general are not quite as common as it used to be. In 2014, there were just 18 bank failures, which is a far cry from the 157 that were reported in 2010.

If you keep all your cash with an online bank, you may be panicking a little at the thought of it going belly up, but you can breathe a sigh of relief. As long as the bank is insured by the Federal Deposit Insurance Corporation, your money is protected up to $250,000. If you're still worried about the safety of your online accounts, here's what to do if your bank fails.

Be clear on what's happening

Any time a bank fails, the FDIC steps in and takes control of the situation. Typically, this means attempting to sell the failed bank to another financial institution. If a sale can't be arranged, then the bank is shut down altogether and the FDIC assumes responsibility for returning deposits to its customers.

When you get word that your online bank is tanking, you want to make sure you understand exactly what's happening so you know what to expect going forward. If your bank is being sold, then it should be business as usual as far as using your debit card, making deposits or using online bill pay services.

On the other hand, if there are no buyers in sight, then the situation may play out a little differently. Your debit card may stop working and any checks you've written may take longer to clear. In the event that the bank goes completely out of business, you won't lose your money but you'll have to wait until the FDIC mails you a check for the balance.

Keep up with loan payments

If your online bank is changing ownership, that doesn't mean any loan obligations you have are wiped out. You'll still need to make sure that you're making timely payments on your mortgage, car loan or credit cards that you have with the bank. If you end up skipping out on the payments, the new bank won't hesitate to tack on late fees and the interest will still accrue.

Once the sale of your online bank is complete, you want to be on the lookout for any notices from the new bank regarding your loans or credit cards. In most cases, the new bank will continue to honor your existing repayment terms but there's always the chance that they could decide to jack up your interest rate or add on extra fees. If that happens and you're not prepared for it, it can easily throw your budget completely off-kilter.

Monitor your account activity

When the FDIC is able to sell your old bank, the changeover usually takes place fairly quickly. Your bank has one name on Friday afternoon and by Monday morning, it's got a completely new identity. Aside from making sure that access to your cash isn't going to be restricted during this time, you also want to keep an eye on your account activity.

This is especially important if you've set up a direct deposit or automatic payments from the account. You should check your accounts to make sure any pending debits or credits are showing up and that transactions are being processed correctly. You don't want to find out the hard way that your bills aren't being paid or your paycheck never got deposited.

Keep in mind that in some instances, your online banking access may be temporarily suspended during the transition. If you normally use Mint to track your spending, any transactions that go through during this time won't show up right away. Once your old bank officially reopens, you'll have to register for online access through the new bank's site. You can then update this information in Mint so nothing falls through the cracks.

Get to know the new bank

Just because your old bank has gone under doesn't mean you have to stay with the new one. Once the initial dust settles, you'll want to take a closer look at who now holds your accounts to see if it's to your advantage to stick with them. If you decide you want to switch banks, remember that MyBankTracker has a list of the top online banks and top traditional banks.

The first thing you should be focusing on is the new bank's fee schedule. For example, if you're used to having your ATM fees reimbursed by your previous bank and the new one doesn't do that, you've got to factor in how much money that may cost you each month. You also want to consider things like overdraft fees, monthly service fees and statement fees, all of which can add up to a decent chunk of change that's being taken out of your account.

Next, you need to check out what kind of interest rates the new bank is offering on your savings. If your old bank was bought out by another online bank, then you're probably not going to see much of a difference. A traditional brick-and-mortar bank, however, typically won't be able to match those higher rates, which can negatively impact how quickly your money grows.

Finally, you should consider what the new bank is bringing to the table and where it falls short. If it's an online bank, for example, things like mobile deposit, mobile banking and online bill pay are a must. If staying with the new bank means sacrificing convenience or losing features that are important to the way you manage your money, that may be an incentive to move your accounts to greener pastures.