FDIC $250,000 Insurance Limit Extended to 2013

This week, President Obama signed a law that includes provisions that extend the $250,000 FDIC & NCUA deposit insurance limit to December 31st, 2013.

Last year, FDIC and NCUA deposit insurance was temporarily increased from $100,000 to $250,000 until the end of this year. This past week, President Obama signed the Helping Families Save Their Homes Act of 2009 (S.896) which includes provisions that extends the FDIC and NCUA deposit insurance limit of $250,000 until December 31, 2013.

The bulk of the bill deals with mortgages, foreclosures, and all that great wonderfulness, so deposit insurance took a back seat in terms of limelight. If $250,000 of coverage isn’t enough and you don’t feel like opening up numerous bank accounts, you can always $50 million in FDIC insurance through the CDARS program.

Jim writes about personal finance at Bargaineering.com.

(Photo: zieak)

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  1. supercereal says:

    What will happen in 2013 when the provision is set to expire? Assuming nothing changes between now and then, will the limit drop back down?

    If so, I would think that may have disastrous effects down the line. People with $250k in the bank realizing that it’s now insured for less than half of the amount, and pulling money out of the system like crazy.

    Or am I missing some simple explanation?

    • azntg says:

      @supercereal: Maybe the extended FDIC/NCUA will be a lot like Social Security… a political third rail that nobody would risk messing with in 2013. Probably will continue (or whoever’s in power might decide to make it permanent).

    • humphrmi says:

      @supercereal: It would just go back to the way it was before the law, where people who had to worry about such things spread their money around different banks to stay under the limit.

      Or, people would pull their money out of savings and – *gasp* – put it into the stock market, because maybe by 2013 the stock market is in a bull cycle again.

      Long term invested money never disappears, it just moves from one investment instrument to another.

    • legwork says:

      You may be right. Notice they jumped right over 2012, carefully avoiding any post-apocalyptic blame for bringing about the end of the world.

    • Megalomania says:

      @supercereal: Absolutely nothing. There won’t be a January 1 2013 run on the banks because anyone who a) has over a quarter million in a bank account and b) keeps up on this will already have diversified their holdings in preparation.

  2. rugman11 says:

    I recently read a paper that said crazy FDIC limits actually make banks less safe because neither the bankers nor the depositors have any reason to limit risk. It suggested that if people were actually at risk of losing their savings should a bank or credit union go under, they would exert more pressure on executives to limit their exposure to risky investments.

    Sounds kind of far-fetched, but it could be worth considering.

    • Bargaineering.com says:

      @rugman11: Insurance is always like that though, imagine if you didn’t have auto insurance, you’d drive more carefully right? With no safety net, you would drive slower and be far more cautious right? But does that mean we shouldn’t have health or auto insurance? Probably not. :)

    • madanthony says:

      @rugman11:

      It’s what economists call moral hazard – if you don’t bear all the risk, you have more incentive to take additional risks, since you get all the reward and only part of the risk.

      The biggest problem is that the average depositor doesn’t have enough knowledge of the riskiness of investments, or the time to comb through their bank’s investments, to decide if it’s safe or not.

    • morlo says:

      @rugman11: The FDIC is actually supposed to do their job and make sure member banks are following a sound business model. Even a cursory examination of banks would have prevented the “mortgage crisis”.

      • rugman11 says:

        @morlo: Wait, so not only do they create a moral hazard but they’re not particularly good at their job in the first place? Why are they around again?

        /sort of kidding

      • megusi says:

        @morlo: While the FDIC is the only insurance for deposits at commercial banks in the US, the FDIC is not the primary regulator for most of those banks. Depending on the bank’s charter, their regulator could be the OCC, the FRB, the OTS or the FDIC. So any lapse in sound regulation shouldn’t be placed squarely on the shoulders of the FDIC. Additionally most of the mortgages that created this crisis were issued by financial institutions outside of the classic “Bank” definition. Those institutions were not regulated — as there was and still remains no jurisdiction for any of the federal regulators to do so.

      • MooseOfReason says:

        @morlo: Banks should insure their own deposits, so they have an incentive to keep the deposits safe.

        An examination of banks? Examining what, exactly? And do you disagree that the Federal Reserve’s actions contributed greatly to the mortgage crisis?

  3. Trai_Dep says:

    Wouldn’t it be better from a policy perspective to have lower limits, thus encouraging high-income depositors to spread their assets across multiple institutions, thus making the system more stable?
    It would also encourage smaller banks, instead of building up even bigger banks to be even more Too Big To Fail.

    • legwork says:

      @Trai_Dep: If you consider when the old limits were established perhaps this new limit is just a correction?

    • Andrew Farris says:

      @Trai_Dep:
      These high value FDIC limits are an encouragement for people with balances above 100k to stay out of the market and keep their money in deposit accounts. That is not good for the economic recovery, and I really question what is going on here with stretching that limit out to 2013? That is farther out than necessary for stock market to recover, and if (God help us) it does take longer than that, the limit could be extended as necessary each year.

      Higher FDIC deposit insurance limits are a scary thing. Keep in mind it is not actually possible for The Fed to repay everyone’s losses if all banks fail. Getting money back to work in the market is what will keep the economy from diving into deep depression.

      • Trai_Dep says:

        @Andrew Farris: Yup. From a modeling sense, what they’re doing is pushing the likelihood of a catastrophe down, while increasing the severity up when/if it does hit. I’d rather push the top of the curve down, spreading the risk, but making it a relative hiccup.
        It works better for the funding model that the FDIC uses, as well.

      • fatcop says:

        @Andrew Farris: If all banks fail, the money is going to be useful for making campfires and that’s about it.

        I, for one, welcome the Barackolypse.

      • madanthony says:

        @Andrew Farris:

        When the limits were raised, the argument was that it was less for individuals and more for companies – it’s not unusual for a small to medium business to need to have several hundred thousand in a checking account for things like payroll, paying vendors, ect. This is liquid cash – it can’t and shouldn’t be in the stock market – and it’s a pain in the ass for a business to have to split up what banks it issues payroll checks from just to stay below the FDIC insurance limit.

        • skycrashesdown says:

          @madanthony: The other thing they did in favor of company payroll accounts was give banks the option of participating in the Transaction Account Guarantee Program (which is /not/ extended through 2013, still only through the end of 2009). Money in “non-interest bearing transaction deposit accounts” is insured regardless of dollar amount through the end of 2009 at participating institutions. (The FDIC for purposes of this program defines non-interest bearing as .50APY or less, so our bank immediately dropped our standard checking account rate to .50APY, where it will no doubt stay until the end of the year.)

        • Trai_Dep says:

          @madanthony: Sure. But if you’re a business, your fiscal, tax and reporting requirements increase by several multiples. Having a couple extra accounts in your Quickbook ledger isn’t a burden, comparatively.
          Besides, the businesses you’re discussing have either a full-time staffer or an accountant to handle such tasks.

      • mm16424 says:

        @Andrew Farris: Larger FDIC limits encourages people to save money. This, in turn, gives banks more capital to lend out & invest. So, in a roundabout way, the money IS going back into the market but just not in the direct manner of going to a broker & actually buying stock.

        Also, the $100K limit was woefully inadequate for various demographics who depend upon savings for a living, such as senior citizens who have built up revenue over many years but want a high level of security for that capital.

  4. sir_eccles says:

    Now all I need to do is find a bank with a decent savings rate.

    • legwork says:

      @sir_eccles: Best rates right now are those dastardly checking accounts that require 10+ card purchases each month, online access, and sometimes even direct deposit. They’re the only 5% bank games I know of these days.

    • Andrew Farris says:

      @sir_eccles: http://www.bankofinternet.com will get you just over 2%, which is still terrible compared to bonds. If you’ve got money that can stay invested a year or more, bonds (or money market bond funds) are far better than keeping it in a bank account.

  5. Bs Baldwin says:

    Great, now my bank’s marketing department is going to send us all new signs we need to replace. On a sidenote, my institution, same initials as a 6 point score in football, has an unlimited limit for non-interest bearing accounts.

    • skycrashesdown says:

      @Bs Baldwin: At least your employer is giving you signs! The FDIC didn’t require people to change their signs, only gave them the option, since the raise is temporary and the signs say “insured to at least $100,000″, so the bank where I work decided not to spend the money on changing the signs. We just inform people verbally instead, ugh. Sometimes they don’t believe us, so we printed out press releases from fdic.gov to pass out.

  6. Grrrrrrr, now with two buns made of bacon. says:

    Wow, that’s great news, although it would be a lot better news if I actually had $250,000 to worry about.

  7. TobySalinator says:

    It’s pretty simple to take out CDs in joint accounts or two separate $250K accounts (spouses) to put $500,000 in one bank and still be fully covered.
    Low- and no-interest accounts also are available in many banks. If you’re really really worried, you can always bank your $s in Nigeria.

  8. Anonymous says:

    The good news is the FDIC for $250,000 has been extended until 2013. Ifc you have the money and a viable instition paying a great rate you can:
    1) Have personal account in your name for 250+
    2) Have a personal account for your wife for $250+
    3) Have a joint account, for each participant like husband and wife insured for $250 or a total of $500+

    I don’t mean to condisending here. If you have the bucks it is easier to deal with fewer banks for FDIC insured rather than
    many banks to stay under the limit. The more you have to invest, the better the rate.