Fall 2007

FDIC Insurance: You've Got Questions, We've Got Answers

Most of the calls and letters the FDIC receives from consumers — about 60 percent of them — are from people asking about their insurance coverage. Here are answers to some common questions that could be on your mind, too.

What are the FDIC's procedures for protecting depositors if a bank fails?

Federal law requires the FDIC to pay the insured deposits "as soon as possible" after an insured bank fails. In practice, the FDIC has paid insured deposits within a few days after a bank closes, usually the next business day. "The FDIC places a very high importance on ensuring that customers have quick and easy access to their insured deposits immediately after a bank fails," said Kathleen Nagle, Chief of the Deposit Insurance Section in the FDIC's Division of Supervision and Consumer Protection.

Most of the time, the FDIC makes payment to depositors by providing them with a new account at another insured bank. If arrangements cannot be made with another institution, the FDIC issues a check to each depositor.

The FDIC also is required by law to pay 100 percent of the insured deposits, including principal and interest, up to the federal insurance limits. The basic insurance coverage is $100,000 per depositor. However, a customer may qualify for more than $100,000 if there are accounts in different "ownership categories." For example, your share of any joint accounts at a bank is insured up to $100,000 separately from accounts you hold in your name alone. Also, certain retirement deposits qualify for $250,000 in coverage, not $100,000.

If your bank fails and you have deposits over the limit, you may be able to recover some of your uninsured funds. The final payment is determined by how much the FDIC recovers in selling the failed bank's assets, in a process that can take several years. "But remember," Nagle said, "the overwhelming majority of customers are within the insurance limit, and all deposits under the limit are always paid quickly and in full."

What happens to my FDIC coverage if I have accounts at two different banks that merge and the combined funds exceed the insurance limit?

When two institutions merge, the FDIC provides a "grace period" that temporarily protects depositors who had funds at both banks. In general, accounts at the two institutions before the merger would continue to be separately insured for six months after the merger—and longer for some certificates of deposit (CDs). When a CD is assumed by another bank as a result of a merger, it continues to be separately insured until the earliest maturity date after the end of the six-month period. "The grace period is intended to give customers an opportunity to restructure their accounts if the merger results in deposits that would exceed the insurance limit," explained Kate Spears, an FDIC Senior Consumer Affairs Specialist.

How can I be sure that deposits I send to an Internet bank are FDIC-insured?

Deposits placed with an FDIC-insured Internet bank are protected the same as deposits at a traditional bank, but you need to know who you are dealing with. First, not all financial institutions on the Internet are insured by the FDIC. Also, con artists set up Web sites that can look like those for real banks, mostly to trick consumers into divulging personal financial information.

If you are not familiar with an online bank, you'll want to confirm the correct URL for the institution's Web site, so that you're not visiting a copycat site. You can look up a bank's main URL using the FDIC's Institution Directory system, at www2.fdic.gov/idasp.

Also, a bank can have one name that it uses for its traditional operations in branches and a different name that it uses for marketing on the Internet. It is important to determine the official name of the bank operating online — to confirm that it is FDIC-insured and to make sure you are not doubling up accounts at the same bank. Depositors who are confused about the true identity of a bank soliciting business on the Internet could inadvertently exceed the federal insurance limit by, say, having a $50,000 CD at an Internet bank without realizing that it's a division of another bank where the consumer already has $75,000 on deposit. In that case, the funds would be combined and would exceed the FDIC limit by $25,000.

Continue your research by contacting the bank using information on the bank's Web site (provided by our online directory of institutions above) or some other independent source. You also may contact the FDIC for additional guidance. "We are happy to confirm the insured status of any bank or, when possible, help determine what trade name a bank may be operating under," said Spears. Start at our Bank Find page on the Internet at www2.fdic.gov/idasp/main_bankfind.asp or call the FDIC toll-free at 1-877-275-3342.

For more help or information on FDIC insurance, start at www.fdic.gov or call the phone number above.