In the Fall of 2008, the FDIC implemented the Transaction Account Guarantee program, which permitted banks to opt-in to a voluntary program which provided an unlimited guarantee for deposits held in non-interest bearing transaction accounts, as well as certain low-interest bearing accounts.  In 2010, the Dodd-Frank Act replaced this voluntary Transaction Account Guarantee with an across the board temporary increase in FDIC insurance to provide unlimited insurance for deposits held in non-interest bearing transaction accounts through December 31, 2012.

Although the initial program was done under the FDIC’s existing statutory authority, the FDIC has taken the position that only Congress can now extend the unlimited insurance program.  Accordingly, unless Congress acts prior to December 31, 2012, as of January 1, 2013, deposits held in non-interest bearing transaction accounts will be subject to the existing $250,000 cap on FDIC insurance.

The possibility of ending the unlimited insurance creates an obligations for banks and depositors to analyze their deposits and plan for possible changes.

For Banks

The FDIC has advised that updated notices should be provided to customers and that deposit contracts should be reviewed to confirm whether any amendments are necessary.  Perhaps more importantly, banks need to review their contingency liquidity plans, particularly if they currently rely on the unlimited insurance to support large balances held in non-interest bearing accounts.  Now is an appropriate time to remind tellers and customer service representatives about advising on FDIC insurance, as well as any other products that the bank may offer, such as sweep accounts of CDARs, to minimize the loss of deposits.

For Depositors

First, and perhaps most importantly, don’t panic.  No depositor has ever lost a penny of FDIC-insured funds, and Dodd-Frank permanently increased the general FDIC insurance limits to $250,000 per depositor per bank  (or $250,000 per deposit co-owner for joint accounts).

Second, you can learn more about deposit insurance by either visiting the FDIC website or speaking with your bank representative.

Third, the key to maximizing FDIC insurance coverage is to understand how various account ownership categories are defined. For example, joint accounts between spouses are provided $500,000 in FDIC insurance coverage.  The FDIC provides an Electronic Deposit Insurance Estimator to help you assess how your accounts would be classified for FDIC insurance purposes.