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Banking 101: Annuity vs CD - How Do They Compare?New FDIC and NCUA Documentation with Latest Deposit Insurance Coverage Changes
POSTED ON BY Ken Tumin
Update 5/20/09: For the status of the extension of the $250K coverage limit increase, please refer to this post.
Both the FDIC and NCUA have come out with new documentation explaining the recent changes in deposit insurance coverage. The FDIC just recently published consumer news where they describe the recent changes:
The National Credit Union Administration (NCUA) has a new document called Your Insured Funds (pdf). Some have questioned if the NCUA guarantee may be weaker than the FDIC guarantee. The "Forward" page states that:
The NCUA deposit insurance coverage and the recent changes closely mirror that of the FDIC. One detail that is a little different is the NCUA's definition of a payable on death (POD) account:
The FDIC still requires the POD or similar term be specified in the account title.
Edit 5/20/09: Updated NCUA link and document title
Both the FDIC and NCUA have come out with new documentation explaining the recent changes in deposit insurance coverage. The FDIC just recently published consumer news where they describe the recent changes:
- The basic limit on federal deposit insurance coverage has been temporarily increased from at least $100,000 to at least $250,000 per depositor
- The basic FDIC insurance limit is scheduled to return to $100,000 on January 1, 2010.
- The FDIC has eased the rule governing the insurance coverage of revocable trust accounts
- Through year-end 2009, certain checking accounts at participating institutions will be fully insured by the FDIC, no matter how much money is in them
The National Credit Union Administration (NCUA) has a new document called Your Insured Funds (pdf). Some have questioned if the NCUA guarantee may be weaker than the FDIC guarantee. The "Forward" page states that:
The shares in your credit union are insured by the National Credit Union Share Insurance Fund (NCUSIF), which is backed by the full faith and credit of the U.S. Government.
The NCUA deposit insurance coverage and the recent changes closely mirror that of the FDIC. One detail that is a little different is the NCUA's definition of a payable on death (POD) account:
A POD account shows the intent of the account's owner that upon his or her death the funds will pass to one or more named beneficiaries. Typically, this intent is shown in the titling of the account by using words such as: in trust for or payable on death to.
The FDIC still requires the POD or similar term be specified in the account title.
Edit 5/20/09: Updated NCUA link and document title
A nice little document this Share Insurance & You; however in the Table on Page 6 illustrating how the multiple accounts with the same CU could be covered to the max of $250K, the arithmetics doesn't add up:
if this ficticious John Credit has these accounts:
MMA --> $140K
Share Certificate --> $75K
Savings Account --> $35K
Checking Account --> $30K
Then he has the total of $280K and not $250K as they have it in the table.
-- Victor.
I always insist that the POD designation be included in the title or address line. I prefer not to test the NCUA's understanding of its own rule.
The FDIC has requested that depository institutions alert investors to this risk, but it is easy to envision situations in which CD investors would never get this information. For example, if an investor had an existing long-term CD of, say, $90,000 with a bank, the investor might well be tempted to purchase another CD of, say, $80,000 with the same bank, under the illusion that he or she would be well under the $250,000 limit. However, the second purchase, because it is under $100,000, might not even trigger any computerized trip-wire or alert that the Bank had set up in the last few weeks to warn depositors about the "snap-back" nature of the increased insurance and the risk that CDs of over $100,000 would not be fully covered after December 31, 2009.
In short, for CD depositors, there is far less to this increase in insurance than meets the eye and there are many traps here for the unwary.
Way to leave account holders in limbo and possibly create a "run on the bank" to get back under the FDIC limit.
Nothing government does surprises me anymore.
Who should include the titling of the account's wording? The institution, or the account owner?
I think the designation of beneficiaries and percentages stipulated by the account owner are sufficient and self-explanatory that they are to receive it at his/her death. Isn't this rather redundant then??? Adela
The reason it hasn't been made permanent yet is that the depsoit insurance premium would have to be increased if it were permanent.
Don't you mean January 1, 2104?