We know that most bank customers have a pretty good idea about how FDIC deposit insurance protects them if their insured bank or savings association were to fail. But recently, we've received a surprising number of questions from consumers who seem to have some disturbing misperceptions about how FDIC insurance works. For example, we've heard from many people who mistakenly believe the FDIC takes years to send insurance checks after a bank failure. Others say they've heard that depositors really only get back 10 cents on the dollar if the bank fails. Martha Reed, the manager of the FDIC's toll-free consumer call center, adds, "We're even been asked if it's true that the FDIC has 99 years to pay depositors."
"The FDIC is proud of its long record of quick—and full—payment of insurance," says Kathleen Nagle, a supervisor with the agency's Division of Supervision and Consumer Protection. "We're concerned that misperceptions can lead to unnecessary worries for consumers." That's why FDIC Consumer News is taking this opportunity to set the record straight on some basic facts.
All deposits within the $100,000 insurance limit are always fully protected. If your insured bank or savings association were to fail, rest assured that every penny of your insured funds is safe. In fact, nearly all of the depositors at FDIC-insured banks are fully protected, because either their funds total less than $100,000 or they qualify for additional coverage under the insurance rules. "If your accounts are fully insured, you can relax, because your money is safe," says Hugh Eagleton, a Senior Consumer Affairs Specialist with the FDIC.
Most depositors have access to their insured funds within one business day after a bank failure. In most cases, the FDIC will arrange for another institution to acquire a failed bank and its insured deposits. When that happens, the failed bank's depositors will become customers of the healthy bank, and they will have prompt access to their insured funds by check, automated teller machine, debit card and other services. With certain types of deposits—primarily 401(k) and other employee benefit plans, living trust accounts, and bank CDs (certificates of deposit) placed through brokers—the FDIC may take longer to complete the insurance determination. "The additional time is needed because the FDIC must ask the depositor for more information before we can accurately determine the depositor's insurance coverage," explains Martin Becker, a senior specialist with the FDIC division that handles insurance claims.
Even in the rare cases when the FDIC cannot find a buyer for a failed institution, payments to insured depositors begin within a few days. In fact, the goal of the FDIC is to begin mailing checks representing insured deposits within one business day. As noted above, payments for certain types of accounts may take longer.
The only depositors who may lose money or may wait a long time for an FDIC payment are those who have uninsured funds... but they still get all of their insured money promptly. The overwhelming majority of depositors at failed institutions are within the insurance limit and get quick access to all their money, as described previously. But there are situations in which large-dollar depositors knowingly or unknowingly exceed the insurance limit, and they may lose some or all of their uninsured funds if their institution fails.
The exact amount a depositor would get back on uninsured funds depends on such factors as the cost of the bank failure and how much the FDIC recovers by selling the bank's assets. The average FDIC payment to uninsured depositors at institutions that failed during the 10 years from 1992 to 2001 was about 65 cents of the uninsured dollar. But it's important to understand that each bank failure is unique and the amount of uninsured funds that would be recovered, if any, may differ. And in rare circumstances, all uninsured funds may be reimbursed.
And how long is the wait before uninsured depositors know how much, if anything, they will receive? Typically about two or three years, because that's usually how long it takes for the FDIC to sell an institution's assets and determine how much money, if any, is available to pay to uninsured depositors. When it's possible, the FDIC makes periodic payments to uninsured depositors as it sells assets and distributes the proceeds. Again, because each bank failure is unique, the timing of payments, if any, may differ.
For more information about FDIC insurance, including how to make sure all of your deposits are fully protected, start at our Web site at www.fdic.gov or call or write the FDIC as listed on the next page. Information about payments to uninsured depositors for each failure dating back to October 1, 2000, also is posted
on the Web at www.fdic.gov/bank/individual/failed/dividends.html.
