Checking accounts receive the gift of extended insurance from the FDIC
December 13, 2010
The extension of an FDIC program to provide unlimited insurance coverage for noninterest-bearing transaction accounts creates some intriguing options for large depositors.
According to the FDIC, from December 31, 2010 to December 31, 2012, deposits in noninterest-bearing transaction accounts -- which includes traditional checking accounts -- will be covered by FDIC insurance without limit. This means that insurance on such accounts can exceed $250,000, and that deposits in noninterest-bearing transaction accounts will not count towards a depositor's $250,000 limit for other accounts, such as CDs, savings accounts, and money market accounts.
Checking account options
Without this extended coverage, if you had $250,000 in a CD, savings, or money market account at one bank, you'd be forced to keep your checking account at another bank, or else forgo FDIC insurance on the combined amount in excess of $250,000. The additional insurance gives you a couple of other options:
- You can safely keep your checking account at the same bank as your other deposits, as long as the total in the interest-bearing accounts does not exceed $250,000. This not only offers you the convenience of dealing with one institution, but also can help you qualify for more benefits that a bank might offer to large depositors.
- With CD, savings, and money market rates so low these days, you might keep a little more than you normally would in a non-interest bearing checking account in order to extend your FDIC insurance coverage. This might make sense especially as a temporary move, when you have money accumulated at the bank in anticipation of an investment or large purchase.
Besides helping large individual depositors, this move by the FDIC could be a boon for small-to-medium sized businesses, who can use a noninterest-bearing checking account to manage their cash flows without worrying about whether or not they've gone over the normal insurance limit.
If you take advantage of this stepped-up insurance for non-interest bearing transactions accounts, just keep in mind that it is temporary. Unless there is another extension, the program will expire on December 31, 2012. So you'll want to set yourself a reminder, and plan for a different approach after that date.
CD Bank Rates
13 December 2010 at 11:19 am
This seems like good news for banks. Now, more people may be inclined to hold their money at one place instead of spreading it around because of lack of insurance.