On January 1, a change in FDIC rules lowered the amount of deposit insurance coverage available on certain large accounts. This not only affects accounts directly covered by the rule change, but could also impact other types of accounts a depositor has at the same bank.
It's important to review your accounts to make sure they are still covered in full by FDIC insurance, particularly if you have a large amount on deposit at any single bank. As a bonus, this also provides a great opportunity to review your checking and savings accounts to make sure you're using the most competitive financial products available.
Checking account rule changes
As one measure to shore up the banking system in the wake of the financial crisis, the Dodd-Frank Act temporarily removed the $250,000 limit on FDIC insurance coverage for non-interest-bearing transaction accounts, a category that includes many checking accounts. The idea was to reduce the potential for a drain on bank deposits by giving customers an added degree of protection.
The Dodd-Frank Act made this expanded coverage effective from December 31, 2010 to December 31, 2012. As a result, as of January 1, 2013, the amount of coverage for those accounts reverted back to $250,000.
How this could also impact savings accounts
Having the coverage limit for non-interest-bearing transaction accounts revert back to $250,000 could mean some loss of coverage for those accounts, but it could also affect savings accounts as well.
During the temporary period of unlimited coverage for certain checking accounts, balances in those accounts were not added to amounts in other types of accounts, such as savings accounts, for the purposes of determining the $250,000 insurance limit. Ordinarily, each depositor is entitled to a maximum of $250,000 in coverage for all deposits at any given bank, regardless of how many accounts the depositor has at that bank.
Now, the expiration of the expanded coverage means that those checking account balances will be added to any amounts in savings accounts and other accounts for the purpose of determining the coverage limit. If the resulting total is over $250,000, coverage on any or all of those accounts may be incomplete.
Reasons for separating your accounts
If you have more than $250,000 in deposits, you can obtain additional insurance coverage by spreading your accounts over multiple banks. Choosing separate banks for checking and savings accounts also allows you to choose the best bank for each type of product independently, rather than linking a great checking account to a less competitive savings account, or vice versa. After all, at that deposit level, you shouldn't have to worry about combining accounts to qualify for large-customer perks such as fee waivers or special savings account rates.
There are a number of things you should keep in mind when shopping for a new bank account. Here are some key items to look for in a new checking account:
- No maintenance fees. Especially for large accounts, you should not be paying a monthly fee.
- An extensive ATM network. This can help you avoid fees for using another bank's ATM.
- Statement options that fit your needs. If you prefer paper statements, choose a bank that won't charge you extra for them. If you prefer to bank online, find a bank that offers the kind of online features you want.
And here are some things to look for in a new savings account:
- Competitive current rates. In general, you'll find that online banks tend to offer higher rates, according to recent MoneyRates.com America's Best Rates surveys.
- A history of high rates. Since savings account rates can be changed at any time, look for a bank that has consistently offered high rates, so they will be likely to maintain competitive rates going forward.
- No rate expiration. Don't be drawn in by short-term teaser rates. Again, a strong ongoing rate is what you want.
Confirming that your deposits are fully covered by FDIC insurance is key to making sure your money will be protected in the event of a bank failure. Upgrading your underperforming checking and savings accounts at the same time can help you get even more from the process.