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$250K Deposit Insurance Limit May Become Permanent - Part 2


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.

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NS4ME   |     |   Comment #2
Anonymous   |     |   Comment #4
Why should anyone be reimbursed with our tax dollars who was over the limit at the time their bank failed?  What is the point of having a limit at all, if people can still be reimbursed when they are over it?  That couple either knew or should have known that their interest would put them over the limit. They wanted to benefit from the rules as they were at the time but now we are supposed to use tax dollars to reimburse them for money that was outside the rules as they were written at the time.  Again, why bother to have a limit at all?
Anonymous   |     |   Comment #5
I passed up a lot of good CD deals in the past because I didn't have enough qualifying relatives to name as beneficiaries.  (This was before the rules were loosened to allow non-relatives as qualified beneficiaries.)  If I had known that I would have been retroactively bailed out...


But, I do have to sympathize with some of the people.  They relied on the word of their bankers.  A lot of old people remember the days when bankers were trained professionals who knew their banks, bank procedures, and bank regulations.  Nowdays, they are called CSRs and their main qualification is having handled money as a cashier at McDonalds.  They are trained in how to punch buttons on their computer and how to upsell customers into buying a fee-generating service and sending them over to the "investment advisor."  Any knowlege of banking procedures is secondary and can be picked up on-the-job through trial-and-error and word-of-mouth.


The big problem is that there is no way to obtain an "offical ruling" about whether your accounts are covered.  You can ask your CSR who will take a guess (and under pressure to fulfill his quota for the day will usually have a favorable guess to move things along) but whose guess is meaningless when it comes to actually collecting the insurance.  You can use the EDIE calculator online, but many senior citizens who are the prime demographic are challenged to send email if they use the internet at all and you still have the garbage-in-garbage-out factor.  (EDIE can't verify if your account title contains the word "POD" in it.) 

So, yes, I can see that people would be overwhelmed trying to figure out the system.  But how do you distinguish them from those who just got greedy for a little extra yield?

Anonymous   |     |   Comment #6
  "What types of bank certificate of deposits are not covered?"


CDs at non-insured banks.  That includes CDs issued outside the United States.

Sometimes CDs that are sold by brokers can be not fully insured if the title of the CD is not worded properly.  For example, if the broker titles the CD in its own name instead of in its name "as trustee" for its customers.

Then there are various other shady operators that are not really banks who might issue what they call CDs.  There was a famous recent case where a Seattle real estate broker set up a company whose name sounded just like a bank and flooded the internet with ads for what appeared to be above-average rate CDs (although if you read the fine print you could figure out that wasn't what he was selling).

And then again, my mother went to the bank when her CD renewed and the banker sent her to the investment adviser who sold her some annuities which my mother thinks are CDs.  I wasn't there so I don't know if the adviser was clear with her or not, but I do know that she thinks she got CDs.

Anonymous   |     |   Comment #7
So anybody have any info on this? has the thing been approved yet?
Anonymous   |     |   Comment #8
OK I found this, so I assume its still "pending"

Seate support for the far-reaching bill remained in flux, however. The Senate was forced to delay its vote to mid-July,