NetBank Fails, Taken Over By FDIC and ING Direct
It was announced today that one of the first online-only banks, NetBank, has officially failed and control has been taken over by the FDIC.
A worried reader just asked me about NetBank earlier this week, and I had pointed him to my post FDIC Insurance: What If My Bank Fails? Make Sure Your Money Is Covered, where I said:
- Banks still fail, and without warning.
- If your money is insured, it is unlikely any failure will interrupt access to your funds for long. Either another bank will take over (they all want more deposits), or the FDIC will pay out from their reserves.
- Never exceed FDIC insurance limits, because you may never see your uninsured money again.
I’m happy to say that I gave out correct information, otherwise I’d feel really bad. NetBank did fail without any prior notice to customers, although a diligent person would have known they were in trouble. Things haven’t been good at NetBank for a while, especially after a previously-announced takeover by Everbank recently fell through. They’ve been unprofitable since 2005, losing over $300 million dollars in the past two years.
Appropriately, online-only ING Direct is taking over the insured consumer deposits. Indeed, there will be very little interruption:
You will still be able to access your money the same way you have in the past, using your ATM card or Visa? check card, checks, online bill pay, wire transfers and standard deposits. Any automated features, such as bill payments or direct deposit, will continue as scheduled. Please Note: As of 5:00 PM EST Sunday, September 30, you will be able to resume all normal account activities via the NetBank website.
NetBank CDs will even stay locked in at their current rates! I just feel sorry for the people who exceeded their FDIC limits. $109 million in uninsured deposits! Why would you do that?! Laziness? Now those people can only expect half their money back 
Due to the projected sale of assets of the former bank, the FDIC is in the position to provide each uninsured depositor with an dividend equal to 50% of your uninsured amount.
September 29th, 2007 at 6:13 am
Wow, what a shame. Used them for a long time but switched out several months ago due to the takeover by Everbank. Did not like what Everbank offered so instead I signed up with Charles Schwab Bank Investor checking account which pays 4.25% Glad I made the move.
WW
September 29th, 2007 at 6:23 am
The FDIC is very reassuring about the continuation of services during the transition to ING. However, one thing from their press release bears repeating:
“It is important to note that neither the FDIC as receiver nor ING Bank as the acquiring institution will e-mail customers of NetBank asking them to validate their deposits or to request personal, confidential information, such as account numbers, Social Security Number, driver’s license number, etc. If customers receive e-mails asking for such personal information, they should consider them to be fraudulent in nature and should not respond.”
September 29th, 2007 at 6:24 am
Does this mean that ING is going to offer Paper Checking accounts? I am curious if they are going to push the legacy NetBank Checking account users to their Paperless Electric Orange account
September 29th, 2007 at 7:49 am
Holy crap. I use them, but I am in the process of switching everything over to Electric Orange. Thanks for the heads up!
September 29th, 2007 at 9:19 am
I wonder how FDIC decides which bank will take over the deposit of the failing bank. Is it like banks have to compete for the deposits or is it something like FDIC chairman picks out the best one he feels like! Do you know! That is an interesting trivia question!
September 29th, 2007 at 9:29 am
Well, no feedback in the other blog so I’ll throw it out here………
Anybody got opinions of Everbank???? (Currently running a 3-mos. promo of 6%)
I was unaware that Everbank was considering taking over Netbank, but then again, I don’t know if that necessarily means that Netbank is in *better* shape than somebody like Netbank or if that means nothing at all.
??????????
September 29th, 2007 at 10:39 am
Bankrate never gave NetBank good ratings as long as I had an account with them. I was lucky enough to get a $75 account opening bonus from NetBank, but decided to close my accounts when I saw its stock price crash and go even lower.
September 29th, 2007 at 10:58 am
I wonder if some of that $109 million may actually be insured due to revocable trust accounts (i.e. PODs, ITFs). I’m not sure if NetBank allowed PODs. If NetBank depositors had those types of accounts with qualified beneficiaries and had over $100K they will have to file a form with the FDIC and wait for it to be reviewed by a FDIC Claims Agent. The FDIC won’t know for sure if those deposits are covered until the Claims Agent gives the okay. It may be denied if the beneficiary had died or if the POD status wasn’t in the account title.
September 29th, 2007 at 12:26 pm
I opened a Netbank account during the dot com bubble, and frankly, it was always a pretty bad experience. They expired your password every month or so–and it was a hassle to call in for a reset. My money was often accidentally ‘trapped’ so I closed it a few years ago.
I think this fundamentally resulted from a bad dot com business model that never adjusted to the reality of online banking competition from brick-and-mortar banks. The mortgage crisis just speeded its demise. (Don’t even get me started on the insanely bad Nextcard credit card from that era–it charged interest on a daily basis with no grace period.)
September 29th, 2007 at 12:57 pm
They might get more than 50% back eventually.
I think it’s uncommon for people to lose uninsured deposits.
And they don’t announce it to the public on purpose–otherwise there would be a run on the bank.
September 29th, 2007 at 5:48 pm
It’s unfortunate but the nature of the beast. Anyone who has more than 100K in the account is completely insane. People with that much money know about the FDIC insurance… I hope.
September 29th, 2007 at 5:53 pm
I’m pretty sure the deposits are shopped around between banks that want the kind of customers and size of deposits the failed banks has. ING Direct was probably the highest bidder.
September 29th, 2007 at 7:48 pm
A small company had around $1 million in NetBank and has $900k of uninsured money that they don’t know what will happen to:
http://tinyurl.com/2r3d7d
I’d be feeling pretty stupid right now if that was my business
September 30th, 2007 at 7:44 am
Yes, banks still go under, but Netbank fell victim to heavy exposure to subprime mortgages with high rate of defaults. Nothing can save a bank with bad fundamentals.
September 30th, 2007 at 12:33 pm
Maybe we can all learn from this with Netbank;… to research more about the bank, their assets and liabilities, location(s), their website, account features and terms and disclosures, and of course, the fdic gov or ncua gov sites to confirm the financial institution… besides just the nice APY.
September 30th, 2007 at 1:49 pm
I must have been the one NetBank customer that didn’t have problems with them. I”m sure I explained my experience with them back on the blog post about the EverBank buy-out.
When I learned about the takeover failure, coincidentlaly, the day after it was announced, bells went off in my head. I knew this was not a good sign but couldn’t explain why. I immediately pulled the little bit of money I had left in NetBank out to my local bank. A couple days later, NetBank was shut down by the FDIC.
I am so glad I was aware enough of NetBank’s issues and had a slim window of opportunity to bail out before the hammer came down from the Feds. I do sympathize with those who still have accounts with NetBank and the drama they are going through.
September 30th, 2007 at 6:09 pm
Here’s the question I have, where do you buy insurance for business accounts needing over 100k?
September 30th, 2007 at 7:36 pm
I also had a great experience with Netbank. I am disappointed to have to go to ING (who I also have an account with) for one single reason. The reason I opened up the Netbank account to begin with :
Free Direct Quicken Support - Specifically the ability to send payments (Online Bill Pay) directly from the Quicken software.
I know most banks offer online bill pay but VERY Few offer direct support for bill pay in Quicken (due to licensing fees imposed by Intuit).
Does anyone have any suggestions for another bank which supports free (or low cost) direct connection quicken support?
Thanks.
CARLO.
October 1st, 2007 at 11:32 am
I also have a current account with netbank. Been with them for 8 years.
As of today their website netbank.com is working the same as always. I just scheduled some bill payments without any problems.
I too am looking for another online bank. any suggestions.
October 1st, 2007 at 3:46 pm
After reading about failure and drop in interest on regular savings have been looking for CD’s. Bankrate rates IndyMac with lowest rating and Countrywide with a U. Is this an issue if you stay under the limit and they are FDIC insured? Haven’t used this bankrate site before.
October 1st, 2007 at 11:04 pm
I have an account with Netbank only for the airline promotion miles. But their services has always been terrible and the rates were awful especially on the checking accounts.
I’m glad I don’t have that much locked in there. What a shame they failed.
October 4th, 2007 at 12:13 pm
I’ve been considering using an online bank because of the higher interest rates, but I just couldn’t trust them like I trust Commerce. I guess everything really is ok if the bank goes under though. Thanks for the education.
October 11th, 2007 at 2:15 am
Hello - I had more than 100k with NetBank. 2 CD’s were locked up so I left them when I switched to another bank back in Sept. I think it’s about 130k in total. Until Oct 10th I had all money available, after this date FDIC or whoever, just removed about 15k from one of the CD’s. I have spoken to them on the phone (two re-res who had no clue about what was insured, per account, per tax ID number aso).
This has been EXTREMELY mismanaged by FDIC. They (NetBank keeps referring to them and their “regulators” to make you feel falsely safe) and NetBank had a “deal” with EverBank setup (for all assets). Two weeks later they turn around and say they lost our money. I just don’t buy it.
FDIC and the “regulators” have been in the loop on this one long enough not to lose $109 million in a couple of weeks!
No calls, no nothing.
I will not be taxed by this worthless government anymore. I am moving my money to Panama. The INS/Dept. of HS/Fed ReServe/FDIC have all proven to be not worthy of my time anymore.
November 2nd, 2007 at 6:39 pm
I had three accounts with NB and chose an account structure with Transfer on Death assignments so that my funds would be insured.
As it turns out, I think, the software system used by NB did not properly allow for accurate transmission of the account ownerships. So when the FDIC initally contacted me it appeared to them I was about to lose a huge amount of my deposits, simply because the data they got off NB’s computer was corrupted. The true account naming was present in hard copy on the signature cards.
To make a long story short, despite the chaos they were facing the FDIC shortly found my signature cards and discovered I was in fact insured. It was a very stressful time but because I had a signed communication from NB when I set up the accounts I had no doubt that I was covered.
Bottom line: As regards the finding on my accounts I think the FDIC did a fine job dealing with a bank that had been cutting some corners. I don’t ever again want to hear someone say we need to go paperless!!!!!
November 20th, 2007 at 10:47 am
Here is what FDIC has done so far:
1. Taken money (50 %) out of 3 different accounts for no reason. Could have been one to make it simple.
2. Sold all our FDIC insured assets to ING, which do not offer Business Checking - hence we have to close everything and go somewhere else.
3. Said that it can take 3-4 years to get any of the funds back.
4. Said that they have no idea how we declare this accounting wise and recommend that we hire a CPA.
There are more problems too, but kind of minor.
It could have been handled much more smoothly.
Best, Mike
November 23rd, 2007 at 8:18 pm
I have been using Netbank since the late 90’s and thought they were great. I hate going into banks and they just let me do everything online or over the phone at 1am. I had no idea what was going on with them and now I got an email that said I require too much service for them and I should go do business else ware. They are sending all my funds to me in a check that should arrive in a week or two. I keep a pile of ATM cards they told me to get so I could take out as much cash as I wanted on the same day and not be bothered by all the restrictions. None of them work anymore. They won’t let me wire out. I am stuck with a bunch of bills to pay and not much money in any of my other bank accounts. This sucks! I think I am going to change to First Caribbean Bank of BVI and Butterfield Bank in the Caymans. My last offshore account with Bank Crozier of St Lucia went belly up the same way Netbank did. This time I am going to use multiple banks in multiple countries like I buy multiple stocks in multiple countries. I will just use their debit cards to pay the bills. There are lots of better more customer friendly banks out there and most are not in the US anymore.
December 10th, 2007 at 7:44 am
Well, the transfer is complete. I had an ING Direct Savings account already and a Netbank Checking account. Yesterday when I checked ING, they had put my Netbank funds into a second ING savings account (I thought they would open up an electric orange account but no.) I called ING Direct and they transferred the “new” savings account funds into my existing account and closed the “new” savings account. Then I opened up an Electric Orange account which is the closest thing to the Netbank account I had. I think it will work fine for my purposes. ING Direct phone support has been great.
December 10th, 2007 at 12:04 pm
I had 3 CDs with Netbank. After the weekend conversion, the acrued interest “disappeared”. It was a totall of about $800 total of interst that is missing. I’m glad I took a snapshot of my netbank account before the conversion.
December 10th, 2007 at 12:09 pm
Update on missing acured interests from CD accounts. I just got off the phone with a rep. She told me the acrued interest is not visible to me but she said the correct interest will be given to me once the CD matures.
December 10th, 2007 at 7:03 pm
You could have cashed all your CDs without any penalties.
January 21st, 2008 at 12:47 pm
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