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Increased FDIC and NCUA Insurance Limits Have Been Made Permanent

Written by Nickel - 16 Comments

On Saturday morning, I read that the number of bank failures in 2010 had climbed to 108. For the sake of comparison, “just” 69 had failed at this point last year, and bank failures peaked at 12 in 2002 as a result of our last recession.

As you’re likely aware, FDIC insurance limits were increased from $100k to $250k per depositor per institution back in 2008. This increase was set to expire at the end of 2013, but it was made permanent with the recent passage of the financial reform bill.

The same goes for NCUA insurance coverage, which was likewise scheduled to fall back to the original $100k limit at the end of 2013. For those that are unaware, the NCUA is much like the FDIC, except that it protects credit union deposits.

Looking at the history of FDIC insurance limits, it seems perfectly reasonable to make the change permanent. After all, the limit has been at $100k ever since 1980. Accounting for inflation, that was the equivalent to $261,934 in 2008 dollars.

From the outside, virtually nothing will change. You’ll just no longer have to worry about the safety of your savings account, CDs, etc. come 2013 if your combined balance at a single bank is somewhere between $100k-$250k.

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Published on August 2nd, 2010
Modified on August 3rd, 2010 - 16 Comments
Filed under: Banking

About the author: Nickel 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!

16 Responses to “Increased FDIC and NCUA Insurance Limits Have Been Made Permanent”

1
Terri T Says:
August 2nd, 2010 at 12:04 pm
I have a little trouble feeling warm and cozy about this news, since the F(ederal)DIC is who we have to depend on to ‘pony up’ if things go south. They seem to have a much worse grasp on finances than I do!
2
Mercet Says:
August 2nd, 2010 at 12:47 pm
Where’s the money-pot that ‘guarantees’ all these accounts ?

Ain’t none.

Bank failures continue at an alarming rate, and FDIC has already had to ask Congress for funds.

Congress is broke too, but can (And now does) print money$$ endlessly (inflation).

A ‘guaranteed’ $25K CD won’t buy a loaf of bread down the road.
3
BG Says:
August 2nd, 2010 at 1:44 pm
We lost almost 2,400 banks in the Savings and Loan crisis in the late 80s, early 90s. Something around 300 banks have failed from year 2000 till now…

I’m not worried.
4
Marc Says:
August 2nd, 2010 at 5:39 pm
It was a sad day when the government created the FDIC, and it’s a sadder day now as they expand it.

It moves us another step closer to socialism, and creates another area where people don’t have to take responsibility for their actions.

This “daddy will take care of you” attitude is hurting the country, making us weak and dependent.

As Reagan so aptly put it:

“The nine most terrifying words in the English language are: ‘I’m from the government and I’m here to help.’”
5
Storch Money Says:
August 2nd, 2010 at 6:23 pm
Interesting comments today.

1) Mercet, if you truly believe that a $25,000 CD will “not buy a loaf of bread” within your lifetime, you should probably stop reading personal finance blogs and just stock up on guns, ammunition, and food.

2) Marc, America already tried life without the FDIC. That time period was marked with repeated panic runs on banks by depositors who had no assurance their funds would be preserved. Perhaps there is some kind of gratifying virtue of personal responsibility in a system of constant risk of deposit loss, but I’m not seeing it.
6
Marc Says:
August 2nd, 2010 at 6:56 pm
Storch Money,

So now we have a populace who can’t be bothered to check out the rating of the bank where they house their life savings. And we get to pay the bill for that lazyness.

Not all banks went down. Most that did could have been seen in advance if anyone had looked.

Getting rid of the FDIC would create competition among banks, not for the highest CD rates, but for the strongest ratings.

I have clients who look for the highest CD rates they can find. When I show them that the bank is rated D+, they just say, “Who cares… it’s FDIC insured.” Makes me crazy.

If you let a free market work — without the nanny state mucking around with things — it will find a way to work better than any government.

I know it’s not an easy situation. But, in the end, people will learn to take care of themselves or they’ll pay the government do it for them. And Uncle Gov comes with a big price tag.
7
BG Says:
August 2nd, 2010 at 7:03 pm
#4 Marc) I would not keep a single cent in a bank that was not FDIC-insured. Talk about personal responsibility: it would be recklessly irresponsible for you to have your money not FDIC insured (or NCUA for the credit-unions).

I think you should read up on banking regulations and the requirements FDIC puts on banks that are covered by FDIC insurance. Most (if not all) of the bank closings were initiated by FDIC because the bank’s management were incapable of running the business successfully (meaning the bank was bankrupt).

Be glad your money is covered by FDIC. If anything, banking regulations should be made tougher, IMO.
8
SavingFreak Says:
August 2nd, 2010 at 7:05 pm
I am torn on the FDIC issue. I think the stability the FDIC has brought has some merit. I also believe a more free market approach could bring dividends. So I think we should make it a percentage of what people can lose instead of a dollar amount. So your bank can pay in and you are insured up to 80% of your investment. This way people would actually shop the banks and still have the protection from utter ruin.
9
finance4youth Says:
August 2nd, 2010 at 7:13 pm
Here’s my problem. After years of working in the banking system, I’ve heard many customers who believed that FDIC was some sort of magic spell that would protect them if the worst happened. I even know people who were so misinformed that they believed FDIC was somehow more protection than NCUA. It isn’t, and it doesn’t confer some magical protection. If it did, there wouldn’t have been runs on IndyMac Bank. Some people know this.

There are FDIC controlled banks and NCUA controlled credit unions that are managed badly. Sadly, very few know about it because people get tied up into the ‘FDIC will save us’ mentality. People need to understand that they will never be truly secure as long as they trust others to provide security.
10
Funny about Money Says:
August 3rd, 2010 at 1:18 am
I have a hard time understanding the mentality that believes a safety net like FDIC is “socialism,” particularly since it’s pretty easy to look up the history of banking in this country and internationally and to understand why and how FDIC was founded. This buzzword has become a bit tedious, especially when it’s used as a tool to obscure facts.

On the other hand, I agree: it’s worrisome that, during a depression (which is what we appear to have here), the government is running low enough on funds that it may not be able to back up its promises. I wouldn’t keep $250,000 in a bank; to my mind that much capital needs to be put to work, not left to gather dust. But I will say that given what the stock market has done over the past decade and is likely to do for the foreseeable future, it’s a sore temptation to pull a big chunk out and stick it in CDs.

I wouldn’t do that without FDIC, though; the trade-off for earning nothing on one’s capital in an insured bank or credit union is that at least you’re not likely to watch principal melt away.
11
Mercet Says:
August 3rd, 2010 at 9:57 am
BG Says: “We lost almost 2,400 banks in the Savings and Loan crisis in the late 80s, early 90s. Something around 300 banks have failed from year 2000 till nowâ€¦ Iâ€™m not worried.”

_________

Over 200 more banks will likely fail this yearâ€¦ this recent crisis already costing the FDIC ten times more than the great 1980s S&L banking crisis. Some professional analysts expect 500-800 more bank failures by 2013.

The average bank failing today is 6 times larger than it was back then, costing the FDIC huge amounts more than in the 1980s crisis.

The 4Q/2009 FDIC report said that almost one third of U.S. banks are unprofitable (at risk of failing); during the Great Depression, one third of the banks did fail.

The FDIC Deposit Insurance Fund (money-pot) is over $18 billion in the red … and technically insolvent. Insured deposits will reach about $9 TRILLION in mid-2013. Of course, the FDIC has a $500 Billion ‘emergency’ line of credit from the U.S. Treasury — which is also technically insolvent (but can borrow unlimited $$ amounts via the FED printing-presses).

We are only in the initial stages of this banking crisis.

Whistling-past-the-Graveyard.
12
BG Says:
August 3rd, 2010 at 12:18 pm
#11 Mercet) No matter what doom and gloom you preach, I’m still making sure my money is insured. There is no ‘red’: it is backed by you, me, Nickel, and everyone else who pays taxes in the US. The money is insured, in the end, by all the taxpayers.

But, if you wish, go ahead and pull your money out of banks and hide it in your mattress or bury it in your yard — to each his own.

By the way, BlueCross/BlueShield provides medical insurance for over 100 million Americans. Each of those policies likely have a $1 million maximum cap. OMG!! BlueCross/BlueShield is insuring over $100 TRILLION!!@3!! Ponies!
13
BG Says:
August 3rd, 2010 at 4:52 pm
#4 Marc) I noticed that you quoted Reagan in way to bolster your argument against FDIC.

Let me provide you with Title IX of the Competitive Equality Banking Act of 1987 (“CEBA”):

“Title IX: Full Faith and Credit of Federally Insured Financial Depository Institutions — Expresses the sense of the Congress to reaffirm that deposits, up to the statutorily prescribed amount, in federally-insured depository institutions are backed by the full faith and credit of the United States.”

Guess who signed that into law? You guessed it: that socialist Reagan guy.
14
Marc Says:
August 3rd, 2010 at 5:55 pm
Hi, BG)

I’m not saying Reagan was perfect. I’m also not saying he was wrong to do what he did given the times and circumstances in which he found himself.

Sometimes we have to do the best we can with what we have. As president, I bet he did many things he would rather have not done.

If you don’t like the word socialism, that’s OK by me. I don’t really care what you call it. I’ve studied it for over 40 years (heck… I used to be one in my youth) and I know what it looks like.

Whatever you want to call it, the fact is the FDIC invites adverse selection because it shifts competition away from being a strong bank to offering the highest CD rates.

People don’t feel they need to be concerned about a bank’s financial strength because they know the government will make everything OK. This keeps the free market from working in this arena.

Obviously, I’m a free market person, and I don’t think this is good for the country. You clearly do. That’s OK with me.

I understand people like that protection, and I’m OK with that. Given the situation the country is in, I don’t want to take the FDIC away from anybody, and I don’t think it’s going anywhere.

This had been more of a theoretical discussion.

If you’d like to read someone who’s a lot smarter than I am, you can see what Ron Paul has to say about the FDIC.

http://www.lewrockwell.com/paul/paul289.html

Of course, you may not like Mr. Paul, either )

Let’s just agree to disagree.
15
BG Says:
August 3rd, 2010 at 6:50 pm
#14 Marc said: “…People donâ€™t feel they need to be concerned about a bankâ€™s financial strength because they know the government will make everything OK…”

No, I think it is better to say:

“People don’t feel they need to be concerned about a bank’s financial strength because they know the bank is overseen by the FDIC (including all regulations and requirements there-in), and also because FDIC-member banks pay insurance premiums to cover deposit accounts (up to $250k) in case of the banks demise”.

In the end, it is just insurance: are you against all forms of insurance or just FDIC?
16
Wayne Says:
April 18th, 2012 at 6:42 pm
Please advise where I can find the official notice that NCUA has made permanent the increase in coverage from $100,000 to $250,000 per depositor.

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