Query: suppose a FI fails and one has a 5 year CD issued 2 years ago. The FDIC takes over the bank and is unable to find a FI to buy the assets and liabilities of the failed institution and therefore will pay the losses to the customer. What will be the amount of the payout? Will it be just the original principal? The principal plus accrued interest to the date of the failure? The principal, plus all accrued interest? I ask because if it is less than principal plus all accrued interest then the financial health of the FI is obviously very important. Thanks for any thoughts on this.
Answers
In one instance the accrued interest (only) in my account put me over the insured limit. My principal I received from the FDIC within only a few days. But the FDIC thereafter never forgot me on that accrued interest. It was only several hundred dollars. But they continued to send me that money incrementally, over time, as they liquidated the bank's assets. I received the last check, a very small amount of money, almost two years later. By then the FDIC had made good, in perhaps four or five payments, on very nearly the entire amount of my accrued interest, even though I was over the FDIC insured limit. I think in the end my loss was less than ten bucks, if that. I was quite impressed with the service.
What is the purpose of FDIC deposit insurance?
The FDIC protects depositors' funds in the unlikely event of the financial failure of their bank or savings institution. FDIC deposit insurance covers the balance of each depositor's account, dollar-for-dollar, up to the insurance limit, including principal and any accrued interest through the date of the insured bank's closing.
What is the FDIC insurance amount?
The standard insurance amount is $250,000 per depositor, per insured bank, for each ownership category. This includes principal and accrued interest and applies to all depositors of an insured bank.
Deposits in separate branches of an insured bank are not separately insured. Deposits in one insured bank are insured separately from deposits in another insured bank.
Deposits maintained in different categories of legal ownership at the same bank can be separately insured. Therefore, it is possible to have deposits of more than $250,000 at one insured bank and still be fully insured. For more information on deposit insurance coverage, see the FDIC's brochure "Your Insured Deposits" which can be accessed at https://www.fdic.gov/deposit/deposits/brochures/your-insured-deposits-english.html
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