Financial Reform Law Makes FDIC Deposit Insurance Permanent at $250,000

Amid the 2,000 pages of the financial regulatory reform bill passed by the U.S. Congress in July 2010 is a measure to set the FDIC insurance cap permanently to $250,000 for bank deposits, such as certificates of deposit and checking, savings, and money market accounts.

In the wake of the financial crisis, Congress temporarily raised the limit to $250,000 from $100,000 in the fall of 2008 through the end of 2009. Lawmakers then extended the higher coverage limits through January 1, 2014. Under the new bill, the insurance coverage amount, which is per person, per financial institution, will stay at $250,000 permanently.

The measure also extends the higher coverage limit retroactively to Jan. 1, 2008, to help depositors at banks that failed before the cap was raised. Some 8,000 customers were caught underinsured when IndyMac bank failed in July 2008.

This legislation also creates a new consumer protection agency in the Federal Reserve, caps debit card fees, and moves most derivatives trading to central clearinghouses. (For more on how financial reform will affect you, read MoneyRates.com's three-part series, Banking Reform and You.)

Raising FDIC Insurance Coverage: A Good Idea?

Although politically popular, raising the coverage limit has its critics. Writing in the Wall Street Journal, Harvard University Business School lecturer Robert Pozen says the move gives weaker banks the ability to expand their deposit bases too quickly. Pozen, author of "Too Big To Save? How to Fix the U.S. Financial System" (Wiley, 2009), says the extensions are bad policy and argues for a tiered system if political pressure requires permanently raising the cap.

A family can qualify for more coverage than the $250,000 limit if money is deposited under different ownership categories. Separate $250,000 coverage is allowed for deposits in a customer's name alone, joint accounts, accounts that name beneficiaries when the owner dies, and certain retirement accounts.