09/04/2013 01:44 pm ET Updated Nov 04, 2013

How Are You Affected by a Bank Merger or Failure?

Stability and reliability are two characteristics that you hope to find with your bank, the place where you keep your hard-earned dollars. Unfortunately, bank mergers and failures occur from time to time. In the event that you are be directly affected when your bank changes or shutters its doors, there are a few things you should know.

When there isn't a threat of a financial meltdown, typical bank mergers are the result of months of ongoing discussions before they're announced. In preparation of the merger, banks will notify customers of the changes (if any) that will occur.

In 2011, Capital One agreed to purchase ING Direct (now called Capital One 360) and kept customers up to date on the any changes that took place -- customers accounts didn't experience anything major. Capital One completed the transition in February 2013.

However, not all mergers are as uneventful for consumers.

Branches and accounts
At the height of the recent financial crisis, Wells Fargo agreed to take over Wachovia in 2009. As a result, Wells Fargo ended up with plenty of overlap in its branch network, leading the bank to close hundreds of branches to reduce costs.

While some customers probably lost their go-to branches, they may have also gained access to a larger fleet of branches and ATMs.

Furthermore, a bank merger means that your bank accounts and their features may not remain as they were before the merger. If you're allowed to keep your grandfathered accounts, then great. Not surprisingly, that's not always the case.

Former Wachovia customers have voiced their frustration when Wells Fargo converted their free checking accounts to ones that carried monthly fees.

Deposits at risk
When banks merge, so do their customer deposits. If you happen to have a large amount of money in the two banks that are merging together, you might exceed the FDIC deposit insurance limit.

FDIC insurance will cover deposits up $250,000 per depositor, for each account ownership type. If you have $200,000 in one bank and $200,000 in the other, you'll have $150,000 in uninsured funds when the two banks merge. You may consider transferring some of the funds to a third bank to safeguard your deposits.

But if you had an individual account with one and a joint account with the other, the entire $400,000 is insured.

When your bank fails
When the FDIC closes down a bank, there are two typical outcomes: the failing bank is acquired by another bank or it is dissolved.

In the majority of cases, the failing bank is bought out by another bank, which is actually a bank merger. You'll experience changes in branch networks and accounts. There's also the possibility that you have deposits in the acquiring bank, which means you may have to worry about hitting the deposit insurance coverage cap.

Most bank failures occur on a Friday. Logos at branches change over the weekend, while customers continue to use their accounts as usual. Bill payments will still be processed and loan payments must made on time. Meanwhile, the acquiring bank will work on integrating the customer accounts of the failed bank into its system so that customers can use the entire branch and ATM network of the acquiring bank.

When there isn't a bank agreeing to take over the failed bank, the FDIC will pay out insured deposits and liquidate the failed bank's assets before attempting to pay out uninsured deposits. This outcome means that you have to find a new bank and face a short period of time where you don't have access to your money (since the FDIC sends a check for your insured deposits).

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Simon Zhen is an analyst, staff writer and columnist for His columns draw focus to all aspects of personal finance and to bank rates, products, and services.