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Are You Ready for a Cashless Society?Five Important Things to Know about Deposit Insurance for Banks and Credit Unions
POSTED BY Ken Tumin
Last week there were seven bank failures and one credit union failure. With failures on the rise, it's important to confirm that your deposits are 100% federally insured. I've posted on many of these issues before, but there have been several website changes at both fdic.gov and ncua.gov. So I thought it would be useful for a new post with updated links and some updated info.
- FDIC & NCUA: The Federal Deposit Insurance Corporation (FDIC) covers deposits at banks and savings associations. The National Credit Union Administration (NCUA) covers credit unions. The NCUA and the FDIC are both independent federal agencies backed by the full faith and credit of the U.S. government. Both provide deposit insurance that's very similar.
- Standard deposit insurance coverage limit is currently $250,000. However, this is scheduled to return to $100,000 after December 31, 2013 at both banks and credit unions. There's one exception. This standard limit will continue on IRAs after 2013. This $250K limit was made permanent for IRAs before the financial crisis.
- Insuring over the standard deposit limit: You can be fully insured if you have more than $250,000 at one bank. However, you have to be very careful. As described at this FDIC page: "The FDIC provides separate coverage for deposits held in different account ownership categories. Depositors may qualify for more coverage if they have funds in different ownership categories and all FDIC requirements are met." Note, the last sentence that states "all FDIC requirements are met." Don't assume your bank will meet these requirements.
- Confirming that your deposits are fully insured: Both the FDIC and the NCUA provide easy-to-use deposit insurance estimators: FDIC's Deposit Insurance Estimator and NCUA's Share Insurance Estimator. These tools are especially important to use if you plan to go over the standard deposit limit.
- Not all banks and credit unions are federally insured: This is more common with credit unions. Several states allow credit unions to use private deposit insurance. Credit unions without "Federal" in their names that are in one of these states may only be privately insured. The American Share Insurance (ASI) is the main private deposit insurer. The only banks in the U.S. that I've seen that are not FDIC-insured are foreign banks with branches in the U.S. You can confirm the federal insurance status of an institution at the FDIC and NCUA websites: FDIC Bank Find Tool and NCUA Find a Credit Union Tool. Not only will these tools confirm the federal insurance status, but you can confirm the physical and web address of the institution.
I believe that the FDIC insurance is indexed to inflation.
a 2005 law requires inflation adjustment every five years beginning in 2010, but only adjusted from 100,000 in 2005.
It will be reset to 103k or 104k IF it returns to the old limit.
On February 8, 2006, the President signed The Federal Deposit Insurance Reform Act of 2005 (the Reform Act) into law
The Reform Act provides for the following changes:
You do not have FDIC insurance if you fall victim to theft. If the teller pockets your deposit then *poof* no FDIC insurance... In those instances the FDIC has the attitude of "that's not our problem".
Bankdeals touched on this last year:
http://www.depositaccounts.com/blog/2009/07/customers-sue-bank-to-get-back-cd-money.html
http://www.depositaccounts.com/blog/2009/11/fdics-fall-2009-consumer-news-fdic.html
In addition to whatever document they issue to you when you buy a CD, you need to go online the next day and access your account data.
I print the account data from each institution every month to ensure that there has been no error or fraud. And I keep the paperwork from the original transaction.
There's no way that that bank will be able to weasel out of that liability - if the bank employee was doing the fraud on bank premises and providing documents through the bank's systems. They will get nailed on lack of supervision and lack of proper controls.
As far as online banking.... I have had some experience with institutions purchasing CD investments from other institutions and 95% of the time they don't get online access because they aren't retail customers. They rely on the paperwork that the bank sends.
- "The FDIC provides separate coverage for deposits held in different account ownership categories. Depositors may qualify for more coverage if they have funds in different ownership categories and all FDIC requirements are met." Note, the last sentence that states "all FDIC requirements are met." Don't assume your bank will meet these requirements."
to writer: How would the bank not meet the FDIC insurance requirements? Clearly a depositor could foul up on meeting or understandng the rules and potentially have un-insured deposits. But what are the bank requirements that could be fouled up other then the obvious of not processing the account paperwork properly. Please clarify your statement above?