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FDIC Insurance Limits Increased to $250k

Written by Nickel - 16 Comments

In case you haven’t heard, the recent economic bailout bill included a provision for increasing FDIC insurance limits to $250,000 per depositor per insured bank. This move is intended to shore up confidence in struggling banks and improve liquidity in banks across the country.

What increased FDIC coverage means for you

The new limits mean that a married couple such as my wife and I could conceivably keep up to $1M at a single bank — individual accounts for each of us ($250k/each) plus a joint account ($500k). Not that it matters too much for us, but the increased coverage is currently slated to end in December 2009, though it’s conceivable that additional legislation could extend this deadline, or make the change permanent.

Who’s paying for the increased FDIC coverage?

Interestingly, FDIC premiums (paid by banks) are increasing, with the average premium going up to roughly double the current rate (from 6.3 to 13.5 cents per $100). This change has actually been in the works since July, and will apply only to the first $100k of deposits per depositor, as the FDIC isn’t being allowed to increase their rates to offset the additional coverage. Rather, they’ll have to borrow from the Treasury to cover losses due to the higher limits.

The future of FDIC insurance

On a related note, Congress actually approved new limits that would peg FDIC coverage to inflation back in 2005. However, that measure wasn’t scheduled to go into effect until 2011. Stay tuned — I’m sure this isn’t the last we’ll be hearing more about FDIC coverage in the coming months…

Published on October 8th, 2008
Modified on May 27th, 2009 - 16 Comments
Filed under: Banking, Economy

About the author: is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

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16 Responses to “FDIC Insurance Limits Increased to $250k”

  1. 1
    Banjo Says:

    “The FDIC isn’t being allowed to increase their rates to offset the additional coverage. Rather, they’ll have to borrow from the Treasury to cover losses due to the higher limits.”

    In other words, it’s not based on any real new value, savings, premiums or reinsurance. It’s just the pre-socialization of future financial calamities. If this has any effect at all it should be to just nick the dollar a bit further. That’s what is really backing this – the future soundness of our currency.

  2. 2
    nickel Says:

    Yes, it sounds like it’s essentially being paid for by future tax dollars.

  3. 3
    Brian Says:

    Does anyone really think this is *that* big of a deal? I’m always reading about how Americans don’t have any savings, so how could this be so useful? Who really has more than $400k in cash sitting around (current possible FDIC coverage) thinking, “great now I can deposit the rest of my cash in the bank and not worry that I can lose it”. Am I off the wall for thinking this? This issue has been “bothering” me lately, so thanks for posting about it.

  4. 4
    Tyler @ Dividendmoney Says:

    I’m with Brian.
    This increase helps a small minority of Americans…it’s more of a political move than anything substantially helpful for the majority.

  5. 5
    nickel Says:

    More than anything, I suspect this move was made to increase overall confidence… As in:

    “If they’re willing to guarantee $250k, then my $10/20/50k has gotta be safe, and I’ll just leave it in place rather than freaking out.”

    I agree that this change unlikely to have much of a “real” effect on the vast majority of Americans.

  6. 6
    Dylan Says:

    You and your wife can keep more than $1 million insured at one bank. If you each had another account that is payable on death to the other, thats another $500,000. More accounts that are payable on death to your kids further increases coverage per beneficiary.

    I agree that the increase is more to address confidence than convenience. In the age of electronic funds transfers between banks. Keeping hundreds of thousands or even millions insured under the lower limits was not overly complicated.

  7. 7
    KC Says:

    I know quite a few older people who have several hundred thousand in the bank, and I don’t consider them rich, just retired and conservative. I also have a friend my age, mid-30s, who just recently did some juggling of cash to get under the current limits – so they have several hundred thousand in cash, too. It may affect a minority of Americans, but it might be more than you think, many older Americans keep lots of cash in bank accounts and CDs – probably more than they should, but that’s a different discussion altogether.

  8. 8
    Bob Says:

    …and just where did the deeply-in-debt Federal Government/FDIC suddenly get the real money to “insure” everybody for $250K ??

    In any scenario involving widespread bank failures — the Feds would have to ‘print’ even more funny-money (inflated $$).

    A year ago I figured it would take 20-30 years for the U.S. Dollar to be literally worthless — now it looks like merely 5-10 years, at most.

    “Today, economic optimists are buying gold… pessimists are buying rice & beans.”

  9. 9
    TTFK Says:

    For anyone that did their homework, this is both moot and redundant.

    Any bank chartered in Massachusetts has coverage under the DIF (Depositors Insurance Fund) which covers ALL deposits in excess of FDIC coverage.

    https://www.difxs.com/DIF/Home.aspx

  10. 10
    Jim Says:

    I’m pretty sure that this won’t have much of a cost. I’m assuming something around 99% of accounts have less than $100k in them. So increasing the limit will only make a marginal difference in the amounts FDIC insures.

    I tried to find data on the % of bank accounts that were over the $100k insured limit but I couldn’t find anything comprehensive. You can look at examples of recently failed banks to get an idea though.

    http://www.fdic.gov/news/news/.....08077.html
    Silver state bank failed with $1.7 billion in deposits and $20 million was uninsured. Thats about 1.1% of the total dollar figure.

    http://www.fdic.gov/news/news/.....08056.html
    http://latimesblogs.latimes.co.....insur.html
    When Indymac failed they had $32 billion in deposits. The FDIC originally estimated $1 billion of it was uninsured but then revised it to $600M. Thats about 1.9%

    So theres 2 example banks with uninsured balances accounting for 1-2% of the whole. I bet that kind of number would hold across the industry given the number of people that would actually have >$100k in a bank.

    Increasing what you cover by 1-2% should increase the cost proportionally I’d assume.

    Jim

  11. 11
    Chris Holdheide Says:

    Due to the cost of inflation this was much needed. In 1980 a $100,000 was ok but with 28 years now past inflation has taken it’s toll. I’m sure with some time this will pass into law.

  12. 12
    Curt Says:

    What’s the limit for at all any more? The should just take the limit off, but it should be clear that it is temperary – so that 100k can put back in place after 1 year.

  13. 13
    Cheaplee Says:

    This limit is a psychological effect only. Investors who are smart that keep their portion of cash in the bank usually spread it to other banks, benefiting from multiple accounts insured by the FDIC. -Lee

  14. 14
    l.h. Patch Says:

    DOES THE FDIC INSURANCE COVER UP TO 25000.00 IN EACH ACCOUNT AT THE SAME BANK if you have multiple accounts ie. checking, more than one CD etc.

  15. 15
    james tidwell sr Says:

    Re F.D.I.C. INSURANCE.
    Right now savings accounts are insured by the FDIC for up to $250,000.–
    until December 31, 2009.

    What we would like to know is:
    a. Will this be made permanent by the end of the year?
    b. When will Congress consider this and make a decision on this matter?

    The FDIC insurance coverage has not increased since 1980 and the raising
    to $250,000.– brings it up to almost the rate of inflation for that period
    of time.

    This is a very important issue for myself and 55 million people who keep
    their retirement funds in banks. We would very much appreciate letting us
    know what is being done about this.

    Sincerely
    James T.Tidwell

  16. 16
    carl blanchard Says:

    the bill passed to-day obama signed it , retroactive back to 2008, i got hit for over $20,000, its my money and i want it back now , its my money and i want it back now !!!!!!!!!!!!!!!!!!!!! of course they will give no interest .

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