The House and Senate conference committee that's working on the financial overhaul bill agreed on Tuesday to add to the bill the permanent increase of the deposit insurance limit to $250,000. According to the Los Angeles Times:
The final version of the legislation is expected to pass by July 4, and the decision Tuesday by House and Senate members of the committee essentially guarantees that the increase in the industry-paid deposit insurance fund will become law.
In my last report on this in May, the Senate was discussing this deposit insurance increase. It appeared that this didn't make it into the Senate bill.
The permanent increase would also apply to NCUA which covers credit unions. This was mentioned in this CUNA news article (Thanks to the reader Cactus who mentioned this news in the discussion forum).
Just over a year ago the President signed into law the deposit insurance change which extended the $250K standard coverage limit to December 31, 2013. According to the FDIC at that time:
On January 1, 2014, the standard coverage limit will return to $100,000 for all deposit categories except Certain Retirement Accounts (includes IRAs), which will continue to be insured up to $250,000 per owner.
If the permanent increase does pass, you will no longer have to worry about your long-term CDs that mature after 2013 becoming partially uninsured. I know many readers have expressed concern about opening large 4-year and 5-year CDs.
There's another interesting part of the bill that may affect savers who had uninsured deposits at IndyMac and four other banks that failed in 2008 before the deposit insurance limit was temporarily increased. In addition to making the $250,000 permanent, the bill will also make it retroactive to January 1, 2008. According to that LA Times article:
Lawmakers estimated the retroactivity would funnel about $170 million in deposit insurance to IndyMac accountholders, with an additional $10 million to depositors at four small banks that also failed in 2008 before the limit was raised.
I know one reader who may benefit from this who had a $415K CD at ANB Financial when it failed in May 2008. He and his wife were very careful to ensure they had the proper account title so that $400K was covered. However, only $400K was insured and they had accrued about $15K of interest which was uninsured. Hopefully, they'll get back that interest if this bill becomes law.
Depositors who exceeded the deposit insurance limit lost half of their uninsured deposits when IndyMac Bank failed in July 2008. Many complained about how they were misled by IndyMac employees regarding how much of their deposits were insured. This is a good example of why you should not take the word of a bank rep when it comes to deposit insurance coverage. You need to make sure you know the FDIC rules and make sure you have the paperwork from the bank that proves that you meet those rules.
For more details about the current FDIC and NCUA deposit insurance rules, please refer to my recent post on deposit insurance for banks and credit unions.