About Ken Tumin

Ken Tumin founded the Bank Deals Blog in 2005 and has been passionately covering the best deposit deals ever since. He is frequently referenced by The New York Times, The Wall Street Journal, and other publications as a top expert, but he is first and foremost a fellow deal seeker and member of the wonderful community of savers that frequents DepositAccounts.

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Misconceptions and Facts about the FDIC and NCUA

Six years ago I did a blog post reviewing two common misconceptions about the FDIC and the NCUA. This was before the financial crisis began. At that time bank failures were rare. Consequently, misconceptions were widespread. Since that time we have seen hundreds of bank failures, so I think most regular readers of this blog know the facts about the FDIC and NCUA. Nevertheless, I thought it would be useful to provide an updated review of these two misconceptions.

The misconceptions that I reviewed were 2 of the 10 covered in this 2006 FDIC consumer education article, Top 10 FDIC Misconceptions. One big change to FDIC coverage since that time is an increase to the standard deposit insurance limit from $100,000 to $250,000. The NCUA which insures credit unions also has this same limit.

There are many ways to increase coverage over this limit. I reviewed an easy way via beneficiaries in this post, Maximizing Your FDIC Coverage with Beneficiaries. As I mentioned in that post, it's important to fully understand the rules if you go above $250,000. It's up to you to ensure all of your money is FDIC insured. It doesn’t matter to the FDIC if your bank made a mistake.

The top 2 FDIC misconceptions that I've encountered include: 1) You do not get the interest earned, only the principal when a bank fails, and 2) It may take years before they release all your funds. If you keep below the insured limits, neither of these are true.

Here's what that FDIC article states about the first misconception:

Federal law requires the FDIC to pay 100 percent of the insured deposits up to the federal limit - including principal and interest.

It should be noted that for the vast majority of the bank failures over the last 4 years the FDIC has been able to find other banks to assume all deposits. In these cases the FDIC doesn't pay out anything. Another bank takes over the failed bank's operation. In 2008 it became common for the FDIC to arrange agreements with the acquiring banks to assume all deposits, even deposits over the FDIC limit. This wasn't always the case. For example, when the FDIC arranged for ING Direct to take over NetBank in 2007, ING Direct only assumed insured deposits (see post).

The second top misconception is that it can take years before the FDIC will release your insured deposits. Here's what the FDIC states:

Federal law requires the FDIC to pay the insured deposits "as soon as possible" after an insured bank fails. Historically, the FDIC pays insured deposits within a few days after a bank closes, usually the next business day. In most cases, the FDIC will provide each depositor with a new account at another insured bank. Or, if arrangements cannot be made with another institution, the FDIC will issue a check to each depositor.

This also doesn't apply to the vast majority of the bank failures when the FDIC finds another bank to assume all deposits. In these cases, the acquiring bank typically continues the operation of the failed bank without any immediate changes.

The FDIC can't always find buyers. These are rare, but they still happen. The last one was on February 24, 2012 when Home Savings of America failed. One of this blog's readers reported that he had accounts at Home Savings of America. He received a check for his deposits on March 1st, less than one week after the bank failed.

Receiving checks from the FDIC after a bank failure hasn't always been as quick as the above example. There were two interesting cases in 2009 when Community Bank of Nevada failed. The FDIC wasn't able to find buyer so it mailed checks to depositors. A reader had a CD at the bank before it was closed. The FDIC tried to mail him the check, but they used the wrong address. It took several weeks before he was able to get his money. Another reader was more fortunate. The check for his CD arrived just one week after the closure. He said he deposited the check into his Chase account, and Chase placed a 7-day hold on it. So it may take more than one week before you receive the check and have access to the funds. However, I have never seen a case in the last four years where it has taken more than a month or two.

Useful FDIC References:

Useful NCUA References:

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Previous Comments
  |     |   Comment #1
community bank in las vegas,i had 4 cds paying 3.25 % and i was leery of the bank going under but the guy whom wrote my cds at the bank assured me not to worry.Six months later i am now living in the Philippines and went online to read the las vegas newspaper and read that the bank went under and no buyer.

  I no longer lived in vegas as i was in the philippines, i had changed the address to my dads home in north dakota before i left for the philippines but the records at the bank didnt reflect the address change and they sent the checks to my old apartment address in vegas twice as they told me this.

Twice they had to cancel the 4 checks as i tried to explain to them the new address in north dakota,finally after numerous phone calls i got the checks delivered to my dads home,whew,i was nervous being a 12 hour time difference and dropped calls from the philippine phone system.Got all the interest paid to date.

I commend the fdic for they didnt not send the checks,just ****ed up and sent to wrong address,other than that they were very nice to deal with on the phone even with bad connection.
  |     |   Comment #2
On March 19, 2010, Advanta Bank Corp., Draper, UT failed. An acquiring institution could not be located. I received a check from the FDIC for the balance of funds in my certificate of deposit, including accrued interest, in a matter of days.  The system worked as it was supposed to.
  |     |   Comment #3
I had the same experience when Advanta was liquidated.  The FDIC check arrived the Thursday after the Friday closing.
  |     |   Comment #4
I had the same quick turnaround of my Advanta funds - received my FDIC funds either Tuesday or Wednesday after the closing.  IIRC, the envelope was postmarked Dallas, which might account for the quick delivery.  My bank did not place a hold on the funds. 
  |     |   Comment #5
So far, the system seems to have worked, at least as reported. My main concern though, is, how will the system work if/when things get really tough? IMHO, and in a worst case senario, there are not nearly enough funds available to cover the institutional failures and/or rush to the exit door if things get bad enough, or if rates increase materially, and I actually believe they will, sooner rather than later.  A relatively few minor institution failures/withdrawals is one thing, but a major amount of failures and/or stampede to the exit door is quite another. So, what happens then?.......
  |     |   Comment #6
I don't foresee a rush to the door if and when rates go up.  These banks watch what the others are doing and if rates go up, they all will have to follow suit to avoid customers rushing to the others.  If they don't need our deposits, they won't care if we leave.  If they need the funds, they will have no choice but to "follow the foal" as the old saying goes.
  |     |   Comment #7
There has been a 30 or so year cycle of interest rates going down since 1981.  Expect the peak in interest rates about 2042.  That might be a good time to lock in a 5 year CD
  |     |   Comment #8
2042???  Are you joking?  Who on this forum is still going to be alive in 2042?  If they are, I don't think they will still be concerned about CDs.  Gee, maybe we do have some youngsters who actually read these posts.  Somehow I just imagined we are old retirees.  I can't even imagine Ken will still be fooling with Deposits.com in 2042! 
  |     |   Comment #11
#8 - i didn't realize this forum is that "old."  Kent looks like no more than late 30's and I thought most folks here are in the range of 30-50?  Guess i was very wrong then.  lol       
  |     |   Comment #9
I had a $100K CD with Indymac bank at the moment it faild back in 2008.  $50K were received from FDIC within couple of weeks.  I did get the rest of the CD (even with a very small interest rate), but it happened 2 years later
  |     |   Comment #12
Part of the FDIC's job is to supervise certain financial institutions for safety and soundness and since the start of FDIC insurance on January 1, 1934, no depositor has lost any insured funds as a result of a failure.

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