Why Savers May See Some Better Deposit Rates in 2013
Most savers probably don't know much about the Transaction Account Guarantee Program (TAGP). This program doesn't affect most of us who make sure their savings are earning interest. However, there are some who have large savings and are primarily concerned about keeping all of that money FDIC insured. This is especially the case for businesses which may have millions of dollars in transactional accounts that are used for things like payroll. This is where TAGP comes in. It provides unlimited coverage of deposit insurance for noninterest-bearing transaction accounts. The original TAGP started during the financial crisis, and it was intended to reduce the risk of bank runs. It has been extended a few times. Now this latest TAGP is scheduled to expire on December 31, 2012.
The expiration of TAGP may be good news for savers. In short, it may encourage small banks to raise rates to maintain deposits.
According to this BauerFinancial Jumbo Rate News, when TAGP expires "there could be upwards of $1.5 trillion that could be withdrawn in search of either FDIC insurance or interest/dividends, or both." Not all of that money will be leaving banks. As the article describes, $1.3 trillion of this money is in large banks, many which are considered "too big to fail". So most of the pressure to raise rates to maintain deposits will be on small banks.
That's one reason banks have been fighting to extend TAGP. This commentary at the American Bankers Association website claims that the expiration of TAGP will put community banks at a competitive disadvantage with the large banks.
The banking lobbyists "appear to have lost this battle" according to this WSJ article. They were not able to get the TAGP extension into legislation that passed the House last week. The article warns that the lobbyists will try again following the November elections.
No Change to the $250K Standard Maximum Deposit Insurance Amount
It's important to note that this expiration of TAGP has no effect on the $250K standard maximum deposit insurance amount. This was made permanent in July 2010. So if you receive a notice from your bank that mentions the end of a type of deposit insurance, it only affects those who have over $250K in checking accounts that pay no interest.