Dedicated to Deposits: Deals, Data, and Discussion

Bailout Bill Signed into Law - Effects to Deposit Insurance?


CNN reported that Bush has signed the bailout package into law this afternoon after the House voted 263-171 in favor of the legislation. The good news for depositors is that this law will temporarily raise the basic deposit insurance from $100K to $250K until 12/31/2009. This applies to both FDIC and NCUA. A copy of the law is available at this US House webpage. On page 6 of the Section-by-Section of Emergency Economic Stabilization Act of 2008 (pdf), it states the following:
Section 136. Temporary Increase in Deposit and Share Insurance Coverage. Raises the FDIC and the National Credit Union Share Insurance Fund deposit insurance limits from $100,000 per account to $250,000 until December 31, 2009. Temporarily raises the borrowing limits at the Treasury for the FDIC and the National Credit Union Share Insurance Fund.

On page 91 of the the full copy of the law (pdf) it states that this becomes "effective only during the period beginning on the date of enactment of this Act." So it seems that this new insurance limit is now in effect. If a bank is closed this afternoon, we might see if this $250K limit really does take effect today. However, I would guess it's going to take the FDIC and NCUA a few days to work out the details. Bot the FDIC and NCUA issued press releases with statements from their chairmen. Here's an excerpt from the FDIC press release:
Temporarily raising the deposit insurance limits should address public confidence issues and provide additional liquidity to banks. As always, any potential borrowings from Treasury to support this additional coverage would need to be paid back from the FDIC's traditional funding mechanism - industry assessments.

And here's an excerpt from the NCUA press release:
The final version of the Act incorporates language that allows NCUSIF insurance level to be increased while recognizing the unique elements of the fund that make it different from FDIC.

Update: The FDIC has just issued a Financial Institution Letter with the news that this new limit is now in effect:
On October 3, 2008, President George W. Bush signed the Emergency Economic Stabilization Act of 2008, which temporarily raises the basic limit on federal deposit insurance coverage from $100,000 to $250,000 per depositor. The temporary increase in deposit insurance coverage became effective immediately upon the President's signature. The legislation provides that the basic deposit insurance limit will return to $100,000 on December 31, 2009.

This summary page describes the details of this change. $100K is replaced with $250K for all cases. IRA limit remains at $250K.

Update: The NCUA has just issued this press release. Just like the case of the FDIC, the new coverage limit now applies to NCUA-insured accounts:
Today’s passage of the Emergency Economic Stabilization Act of 2008 will require NCUA to immediately increase share insurance protection to $250,000 on all types of accounts until December 31, 2009.

This CNN article looks into potential effects of this new deposit insurance limit. It looks mostly at the effects to banks rather than the consumers. In my opinion, this will make it easier for those with large balances to take advantage of savings account and short-term CD deals. The downside may be that deals will end quicker as banks can bring in deposits faster. Then there is the question about what will happen at the end of next year when this new insurance limit ends. I can see both banks and consumers pushing hard for this to be extended. The shape of the deposit insurance fund at the end of next year could be a big factor. If the fund is able to hold up, there will likely be a better chance we'll see this continued.

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Comment #1 by thomas (anonymous) posted on
The change is very clear:
"INCREASED AMOUNT.—Effective only during the period beginning on the date of enactment of this Act and ending on December 31, 2009, sec
tion 11(a)(1)(E) of the Federal Deposit Insurance Act (12 U.S.C. 1821(a)(1)(E)) shall apply with
‘‘$250,000’’ substituted for ‘‘$100,000’’.

So Joint Accounts would be insured for $500,000 (assuming two people) and so forth.

IRAs did not change, they are srill at $250,000

Comment #2 by Anonymous posted on
So when do we think this will be effective? I have money ready today to move into my higher rate accounts that are already near the old FDIC limit.

Comment #3 by scott (anonymous) posted on
Per FDIC Website it takes effect immediately

Basic FDIC Deposit Insurance Coverage Limits*

Single Accounts (owned by one person) $250,000 per owner**

Joint Accounts (two or more persons) $250,000 per co-owner**

IRAs and certain other retirement accounts $250,000 per owner

Trust Accounts $250,000 per owner per beneficiary subject to specific limitations and requirements**

* These deposit insurance coverage limits refer to the total of all deposits that an accountholder (or accountholders) has at each FDIC-insured bank. The listing above shows only the most common ownership categories that apply to individual and family deposits, and assumes that all FDIC requirements are met.

** The legislation authorizing the increase in deposit insurance coverage limits makes the change effective October 3, 2008, through December 31, 2009.

Comment #4 by Jim (anonymous) posted on
Off to buy a $250k 2-year CD... lol, j/k :)

You'd think banks would still have to compete on interest rates. Many people must now plan to move a wad of money from a lower interest paying bank to a higher paying bank, and the only way for the slightly lower paying bank to prevent it would be to raise rates (or hope the higher-paying bank lowers their rates soon).

This might create its own bank run.

Bank A offers 3.5%
Bank B offers 3.3%

You now have $99k in Bank A and $99k in Bank B.

One ACH from now, Bank B suddenly has lost hundreds of thousands or millions in deposits from many depositors moving their money into Bank A.

Comment #5 by Jim (anonymous) posted on
And, to expand my example, Bank A is probably a more risky bank than Bank B, which is why A has the higher interest rate than B. So, with the FDIC limit increase, they're encouraging a "run" on the healthy bank to bring money to the weak bank. That's the point, I'm sure, but if it goes too far it'll kill the formerly healthy bank.

Probably not, but just thinking out loud.

Comment #6 by Anonymous posted on
Is there any clarification on the titling of accounts? Is it good enough that the bank, or credit union, has the name of the beneficiaries in their records? Or must the account title list the names of the beneficiaries?

Comment #7 by Anonymous posted on
There has never been any requirement that the names of the beneficiaries be listed in the account title. (But they must be listed in the bank's records.)

The FDIC (but not the NCUA) requires that there be some indication in the title that the account is a trust, either by spelling it out or by using a commonly accepted abbreviation such as POD or ITF.

Nothing in this bill addresses the issue and nothing has changed in that regard.

Comment #8 by Anonymous posted on
But the account title issue may be no longer be a problem for many people. An improperly titled POD account would be treated as an individual account for FDIC insurance purposes, and added to your other individual accounts at that bank. Now that total is covered up to $250,000 instead of $100,000. So this "fixes" the problem for many people with between $100,000 and $250,000 in a bank - like me - at least until December 31, 2009.

Comment #9 by trinidon2k (anonymous) posted on
Are you sure banks would want to keep the 250k limit? Won't they just be forced to pay higher premiums?

The more money they take in, the more unsound they can be, the higher premium they are forced to pay, the more it cuts into the bottom line.

Comment #10 by Anonymous posted on
I'm not sure what you are saying.

A bank is free to turn down any deposits if it doesn't want them. If it would prefer not to take in any more deposits, it could flatly turn them down or lower the interest rate for deposits over $100k.

Comment #11 by Anonymous posted on
My bank, (family-owned), does not provide loans such as mortgage loans. I called because I was worried about the current economy status, and they said that because they only are involved with personal and business accounts and do provide lending services, there is nothing to worry about because they do not provide loans as big as mortgage loans.

I just wanted your advice on this comment. How reliable is it to not be worried about banks such as


Comment #12 by Banking Guy (anonymous) posted on
Banking Guy
You can look up Traditionbank's safe & sound rating @ It's not same ratings as the FDIC uses, but it can give you some idea of the soundness. If you stay below the FDIC limits, the soundness should not be an issue.

Comment #13 by Anonymous posted on
Reference Anonymous at 10/3 8:04pm -

A POD is no longer needed for FDIC insurance up to $250k, but POD is STILL very important for PAYABLE ON DEATH. Otherwise upon one's death the account falls under control of the State Court probate system.
(this is a generality - lots of variables possible)

Comment #14 by Anonymous posted on
Ensure our elected representatives know we want the FDIC and NCUA deposit insurance increase made permanent.

Comment #15 by Anonymous posted on
What is this "temporary" stuff with new FDIC insurance limits? What happens if Joe "Sixpack" hasn't paid attention to the "temporary" statement and buys a 5 year CD at one bank for $250,000? Does that mean after the end of 2009 if the bank fails he is only insured for $100,000??
The FDIC doesn't know that not everyone is educated by "this" website. Just wondering.

Comment #16 by Anonymous posted on
Our government is very shortsighted. Look at the expiration of the Bush tax cuts in 2010. Look at how they pass a new bill every year to patch the AMT tax for another year. This is the same thing. Yes no one should be putting their money into CD’s with terms longer than 14 months right now (at least not over 100K). It is possible the limit will be extended, but we won’t know for another year.

Comment #17 by Anonymous posted on
Funny thing is that this increase in FDIC limits does *not* come with increased payments by banks into the insurance fund. That's why it's only temporary... ugh.

Comment #18 by Anonymous posted on
Where did you find the info that the banks will not have increased insurance payments with the new limits? I did not find that on the FDIC site but I just looked under Consumer Info.