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New FDIC and NCUA Documentation with Latest Deposit Insurance Coverage Changes


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 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

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  |     |   Comment #1

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.
  |     |   Comment #2
The checking account might be fully covered.
  |     |   Comment #3
Re: Titling of POS accounts.

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.
  |     |   Comment #4
I think the real story here is how CDs of any duration are not fully covered by the $250,000 increase, because of the "snap-back" to $100,000 coverage on January 1, 2010.

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.
  |     |   Comment #5
The latest bank failure: First Georgia Community Bank, Jackson, GA
  |     |   Comment #6
I think there is zero likelihood of Congress allowing the limit to revert back, from $250k to $100k. Before the end of 2009, I bet they permanently up the limit.
  |     |   Comment #7
This snap-back to 100k is such a dumb idea.

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.
  |     |   Comment #8
About the POD matter and NCUA's statement: "Typically, this intent is shown in the titling of the account by using words such as: in trust for or payable on death to."

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
  |     |   Comment #9
Sheila Bair (she of the BALD, BEARD, AND BAIRD trio) has said that if you think deposit insurance is going to go back down you are wrong.
The reason it hasn't been made permanent yet is that the depsoit insurance premium would have to be increased if it were permanent.
  |     |   Comment #10
Reguarding the deposit insurance temporary maximum not going down, I wish I was as sure of that as you are. I truly hope you are right. But I will only be convinced once I see it written into law.
  |     |   Comment #11
I too hope the higher FDIC insurance is made permanent. However, it could go back down OR it just could be extended for another year still leaving longer term higher deposit amounts in limbo. I truly hope that is not the case.
  |     |   Comment #12
Re: "The basic FDIC insurance limit is scheduled to return to $100,000 on January 1, 2010"

Don't you mean January 1, 2104?
  |     |   Comment #13
Please note the update at the top of the post. This was a post that was originally published in 2008.

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