On this, Thanksgiving Day here in the United States, I’d like to give thanks for the increased limits of FDIC insurance coverage — one of the few bright spots in the government’s inconsistent handling of this credit crisis.
A few months ago I wrote about FDIC insurance of bank deposits here in the United States. At the time, FDIC insurance was limited to $100,000 per deposit account for most accounts.
But Congress subsequently passed legislation temporarily raising the FDIC insurance limits to $250,000 per deposit account. Those temporary insurance increases are in place from October 3, 2008 through December 31, 2009.
Details about the $250,000 Insurance Increase
The Emergency Economic Stabilization Act of 2008 (the “EESA of 2008″) and the Temporary Liquidity Guarantee Program initiated by the FDIC on October 14, 2008, substantially raised the U.S. government’s guarantee of your bank accounts.
In fact, by combining certain types of account ownership it is possible to get more than $250,000 insurance of, say, a husband and wife’s jointly held bank accounts. And if trust accounts are involved, a family could have well in excess of $250,000 of FDIC coverage for combined bank accounts. Small businesses also get extra FDIC coverage for payroll accounts, for instance.
Here are 2 resources that outline the temporary FDIC insurance limits:
- This legal summary of the provisions gives detailed scenarios for achieving more than $250,000 in FDIC coverage for spouses and families. It also outlines basic rules for FDIC coverage of corporate and business accounts. This summary gives an overview of the rules.
- MyFDICinsurance.gov has a helpful online calculator to help you figure out how much FDIC coverage you have for various types of accounts. You just plug in the types of account ownership and the amounts, and the site calculates your coverage. Financial expert Suze Orman has done public service announcements for FDIC insurance and you can watch those at the site, too.
Why the FDIC Insurance Increase is Important
This temporary raising of the FDIC insurance limits obviously was designed to re-assure consumers — and small businesses — that deposits were safe and to prevent a run on the banking system. Knock on wood, we have not had a run on the banks. The FDIC insurance appears to be having the effect of re-assuring the public and creating stability in the system — at least in that one sense.
Some have criticized the FDIC insurance increases as irrelevant. Others have called them elitist.
I think those criticisms miss the point.
It’s true that these FDIC insurance increases have done nothing to help the rest of the credit crisis we are in. But — I don’t agree that FDIC insurance is irrelevant — not at all. Even if you are nowhere close to the coverage limits with your deposit accounts, just knowing the Federal government stands behind bank deposits well past your own upper limits is highly reassuring. In an uncertain and volatile financial environment, it’s one less thing to worry about.
FDIC insurance is all about confidence of the public. None of us ever want to have to make an FDIC insurance claim, and wait weeks, months or years to get paid — or maybe never get our money. We want that insurance to be so reassuring that it prevents ANY disruption to the system in the first place.
Let me tell you a true story of the harm that a little uncertainty and disruption can do. A number of years ago a retirement account that I was accruing was put into limbo. The insurance company that had underwritten it went into liquidation. For two years I did not know for certain that I would ever see that money again. It was $6,000 — a fortune to me at the time, early on in my working career. The company trustee of the retirement plan kept writing letters assuring us the funds had a high likelihood of being recovered. But for two years all I had were letters, not my money. It was highly worrying. The uncertainty eats at you. Eventually I got the money (sans any interest for two years) and rolled it into an IRA account, but in the meantime I had a lot of angst over it.
Multiply that kind of angst by hundreds of thousands or millions of consumers feeling the same way, and you begin to see my point.
Can you imagine what would have happened in the midst of the October financial market turmoil, had large numbers of people started yanking their money out of banks due to fear? Or if news started to spread of consumers having holds placed on funds, or discovering their deposits exceeded the FDIC limits, on a wide scale? Or if small businesses couldn’t pay their employees because their payroll accounts were on hold due to a bank failure — even for a few days?
I shudder to think of the panic that could have ensued. FDIC insurance is there to prevent panic. I think it’s done its job well. We’ll never know what kind of widespread panic might have developed but for that move. But just the fact that we have NOT had large bank runs is enough for me. FDIC insurance is one small thing I give thanks for this Thanksgiving.