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Home >> Keeping Your Money Safe
Unlimited FDIC Coverage for Checking Accounts
The FDIC has announced that it will provide 100% deposit insurance coverage for non-interest-bearing transaction account accounts -- traditional checking accounts that don't earn interest. The extended coverage is effective immediately under the FDIC's Transaction Account Guarantee Program (TAGP), and will continue through December 31, 2009. |
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The FDIC's action is one aspect of its Temporary Liquidity Guarantee Program (TLGP). The full account coverage is aimed primarily at business accounts that need to keep larger balances for covering payrolls and meeting other business needs, but it extends to all non-interest-bearing transaction accounts, whether they are held by businesses or by individuals and households. The FDIC's goal is to help depository institutions retain such accounts, giving small and medium size businesses a reason to keep their balances with their current financial institutions. That would help the institutions maintain their liquidity, and thus enhance their ability to make loans.
Here are highlights of the FDIC's full coverage program:
- Deposits in credit unions are not covered under the FDIC's TAGP. The National Credit Union Administration has asked the Department of the Treasury for authorization for a similar program for federally-insured credit unions, but we are not aware of a response from Treasury.
- Coverage under the temporary program began October 14, 2008.
- This coverage is separate from the standard coverage provided for deposit accounts.
- Business and non-business non-interest-bearing checking accounts are eligible for coverage.
- When the FDIC issued its final rules for the program, it added Interest on Lawyer's Trust Accounts ("IOLTAs") to the list of accounts covered (even though these accounts earn interest).
- Also added are NOW accounts that are paid interest at an interest rate of 0.50% or less.
- Other NOW accounts , money market deposit accounts, savings accounts, and time deposits (certificate of deposit accounts) are not covered under this program. They remain covered, up to the current insurance dollar limits, under the standard FDIC coverage rules.
- If a depository institution transfers funds from a depositor's non-interest-bearing transaction account (checking account) to a non-interest-bearing savings account (some institutions use such transfers to manage the amounts of reserves they have to maintain), the funds in the non-interest-bearing savings account will be covered under the TAGP.
- If a depository institution transfers funds from a depositor's non-interest-bearing transaction account (checking account) to an interest-bearing savings account, the funds in the non-interest-bearing savings account will not be covered under the TAGP.
- Accounts covered by the temporary program are not counted toward coverage limits under the FDIC's Standard Maximum Deposit Insurance Amount (see the example below).
- Coverage under the program extends through December 31, 2009. After that date, unless the program is extended, depositors' accounts in an institution will again be combined and insured under the FDIC's traditional coverage rules.
- The current Standard Maximum Deposit Insurance Amount of $250,000 is also scheduled to expire on December 31, 2009, unless Congress extends that deadline. It would then revert to $100,000.
- Insured institutions are automatically enrolled on the TAGP through December 5, 2009 (recently extended from November 12). On or before December 5, institutions may opt out of the program.
- If an institution opts out of the program, its depositors' non-interest-bearing transaction account balances will cease being covered under the program. Each such account will be combined with other account balances of the depositor and insured under the FDIC's standard coverage rules.
- If an institution does not opt out by December 5, 2009, it will remain in the TAGP through its expiration date, December 31, 2009, as long as it remains eligible.
- Participating institutions will be assessed a surcharge on the amounts they pay for deposit insurance coverage, based on the totals of their eligible accounts that exceed $250,000. All eligible entities are covered for the first 30 days of the program at no cost.
How to Tell if Your Checking Account is Covered Under the TAGP
Here's how to tell whether your bank or savings association is participating in the Transaction Account Guarantee Program (TAGP).
- The FDIC will publish on its website a list of the eligible entities (insured depository institutions, bank holding companies, savings and loan holding company and others) that have opted out of the TAGP. The TAGP is one of two parts of the Temporary Liquidity Guarantee Program (TLGP), and your bank could opt out of one or both parts. Even if the bank opts out of the Debt Guarantee Program (the other half of the TLGP), it may decide not to opt out of the Transaction Account Guarantee Program (TAGP). If your bank is listed on the FDIC's Opt Out list, be sure to check which of the two programs the bank opted out of. [BankingQuestions.com will keep its eyes open for the launch of that website page, and will include a link here.]
- Eligible depository institutions must post in their main office and branch lobbies by 12/19/2008 a prominent notice that clearly indicates whether they are participating in the program. If the institution is participating (has not opted out), the notice must also clearly state that funds in non-interest-bearing transaction accounts at the institution are insured in full by the FDIC.
- If a participating institution uses tranfers or other arrangements that result in funds being moved to or re-classified as interest-bearing or non-transaction accounts that are not covered under the TGAP, it must tell you if your account is affected, and that funds in the non-qualified account will not be covered by the TGAP guarantee.
- If the FDIC determines that a depository institution is no longer eligible to participate in the TLGP, the FDIC will work with the institution and its primary federal banking agency to ensure that the institution notifies its customers that its participation has ended.
EXAMPLE
Assume that a corporation has the following accounts at a participating FDIC-insured depository institution:
- Account A -- a non-interest-bearing checking account with a $500,000 balance
- Account B -- a non-interest-bearing payroll checking account with a $275,000 balance
- Account C -- a business money market deposit account with a $150,000 balance
- Account D -- a business savings account with a $100,000 balance
Under the TAGP, Accounts A and B, which are both non-interest-bearing transaction accounts, are fully insured through 12/31/2009. The other two accounts, with a combined balance of $250,000, are fully insured to the FDIC's Standard Maximum Deposit Insurance Amount (temporarily $250,000 for a business depositor), through 12/31/2009.
After 12/31/2009, assuming that the TAGP expires and that Congress does not extend its temporary increase in the Standard Maximum Deposit Insurance Amount from $100,000 to $250,000, the corporation's accounts will again all be combined and insured to the "normal" Standard Maximum Deposit Insurance Amount of $100,000.
Published on BankingQuestions.com October 31, 2008; last updated December 1, 2008
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