Unlimited FDIC Insurance for Certain Transaction Accounts Comes to an End
From December 31, 2010, through December 31, 2012, certain transaction accounts that pay no interest were entitled to unlimited deposit insurance coverage. This special, temporary protection was created by Congress to help maintain confidence in the financial system for depositors who had large balances in noninterest-bearing checking accounts, typically for businesses but any depositor qualified. Now that the unlimited coverage has ended, FDIC Consumer News wants to clear up some common misconceptions about this law, and a related one.
As in the past, noninterest-bearing transaction accounts will be insured up to the standard coverage amount of at least $250,000, along with any other deposits held in the same ownership capacity (such as single or joint accounts). "We have been getting questions from depositors who think noninterest-bearing transaction accounts are no longer insured at all, and that is incorrect," emphasized Martin Becker, Chief of the FDIC's Deposit Insurance Section.
Funds in special trust accounts that lawyers establish for their clients — commonly known as "Interest on Lawyer Trust Accounts" or "IOLTAs" — also will be protected for at least $250,000. Under a special exemption, IOLTAs previously qualified for the temporary unlimited coverage for noninterest-bearing transaction accounts even though they can pay interest. IOLTAs typically hold deposits for multiple clients, and under the rules the insurance coverage "passes through" to each owner's share of the account for up to $250,000. "That means the total, fully insured amount in the IOLTA account can greatly exceed $250,000," Becker explained.
The standard FDIC deposit insurance coverage amount of at least $250,000 per depositor at each insured institution is still in effect. In 2008, Congress passed a law increasing the basic FDIC coverage from $100,000 to $250,000, but only through 2013. Then in 2010, the lawmakers approved a permanent increase to the $250,000 coverage amount. However, some depositors are still asking whether the standard deposit insurance coverage of $250,000 will revert back to $100,000 at the end of 2013. "The answer is no, Congress made permanent the standard coverage amount of at least $250,000 in 2010," Becker stressed.