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FDIC Consumer News - Spring 2002

Important Update: Changes in FDIC Deposit Insurance Coverage

The FDIC deposit insurance rules have undergone a series of changes starting in the fall of 2008. As a result, certain previously published information related to FDIC insurance coverage may not reflect the current rules. For details about the changes, visit Changes in FDIC Deposit Insurance Coverage. For more information about FDIC insurance, go to www.fdic.gov/deposit/deposits/index.html or call toll-free 1-877-ASK-FDIC (1-877-275-3342). For the hearing-impaired, the number is 1-800-925-4618.

Illustration of a satellite in space with dollar signs falling from it down to the earth. Half of the dollars signs are landing on a bank and the other half on a house. Long-Distance Banking: A Guide to Your Rights and Risks

Considering a far-away or Internet institution? First know the basics of remote banking.

What do you do when you get ads in the mail about great deals from banks and savings institutions you've never heard of and with offices you'd never get to, including some that only do business on the Web? Do you turn away? Or do you wonder if you could do better—on everything from savings accounts to mortgages and auto loans—by banking long-distance?

The FDIC is getting more and more questions from consumers about their rights and responsibilities and the risks of doing business with Internet banks and other institutions without a local office. FDIC Consumer News offers this overview, in a question-and-answer format, to address your questions and concerns.

What are the potential advantages of banking long-distance?

If you can get the services and interest rates you're looking for, and if you're comfortable conducting financial transactions by phone, mail or the Internet, long-distance banking can be a good option. For example, banks that rely heavily on the Internet, toll-free call centers and other low-cost ways to serve customers nationwide may be able to pay higher returns on deposits or charge lower rates on loans than institutions with more extensive and expensive branch office networks. Michael Benardo, manager of the FDIC's electronic banking section, says that banking over the Web, in particular, offers convenience. "If you can do your banking from home, 24 hours a day, seven days a week, that's much more convenient than driving or walking to the bank during limited office hours," he says.

Online banking also allows you to monitor your account—to see which checks have cleared and which deposits have been credited—without having to wait for a statement in the mail. Of course, institutions in your local community probably offer banking services online or by phone or mail, but some people may prefer to shop nationwide for the best deals.

What are the possible disadvantages?

The biggest disadvantage may be that you can't sit down with a bank employee face-to-face if you want to, which can be especially helpful if you need to solve problems. You're likely to have to rely on the mail to make deposits and conduct certain other business. You'll also have to use an automated teller machine to get cash, and those transactions usually involve fees. Also, because some of these institutions may turn out to be fraudulent, the consumer must bear additional responsibility for checking out the legitimacy of a distant institution before providing confidential information or sending money.

This isn't to say that far-away or unfamiliar banks should be avoided—only that risks exist and precautions should be taken. "As with most business transactions, it's buyer beware," says Janet Kincaid, a senior consumer affairs officer with the FDIC. Jeff Kopchik, a senior policy analyst with the FDIC's electronic banking section, agrees. "Customers have the primary responsibility to take reasonable steps to make sure that an institution they are considering doing business with is legitimate and FDIC-insured, and that their deposits are within the FDIC insurance limits," he says. "The location of the bank doesn't change that."

How can I be sure a remote institution or an Internet bank is legitimate?

First, learn everything you can about the bank. Consider starting with information posted on the bank's Web site, usually found in an "About Us" section or something similar. You may find a brief history of the bank, the address of its headquarters and branches, telephone numbers, and how to contact the bank for customer assistance. "Not providing these details could be a sign you should be extra cautious before doing business with that bank," adds Kopchik. "You should also be suspicious if the Web site looks sloppy or the Internet address appears unusually long," both of which he says are possible signs of "a temporary Web site set up by a crook."

If you're considering making a deposit, look for the official FDIC logo or the words "Member FDIC" or "FDIC-Insured" on the institution's Web site or advertisement, although some fraud artists have been known to use the FDIC name or logo illegally. When in doubt, you can confirm that a banking institution is insured by contacting the FDIC (see "For More Information" ) or by searching our online "Institution Directory," a database of insured institutions. Be aware that some banks and thrifts operate affiliates and Internet sites under a different "trade" name than the company's "legal" name, and the FDIC database only uses the legal name. The FDIC and other federal regulators, though, have advised banks to clearly identify their legal names in advertisements and on their Internet sites.

When it comes to getting a loan, purchasing insurance or investing in any other financial product, steer clear of any company that has not been licensed to do that kind of business by a federal or state government agency. If you're not sure how to find out if a company is legally licensed, get guidance from your state government's consumer protection office or Attorney General's office, as listed in your phone book.

A fraudulent Internet site may attempt to lure innocent victims with unusually attractive offers, so be very suspicious of deals that are significantly better than what other banks are offering. An example would be an offer of 15 or 20 percent interest on a deposit when local banks and other Internet banks are paying five percent. In addition, watch out for Web sites that deliberately use a name or Internet address similar to, but not the same as, that of a real financial institution. That's a deceptive technique used to trick consumers into thinking they're dealing with a reputable bank. For more guidance about Internet banks, read the FDIC brochure "Tips for Safe Banking Over the Internet" available online or from the FDIC's Public Information Center.

If I bank by telephone or the Internet, are my legal protections the same as when I bank in person?

Yes, you're covered by the same consumer protections as other banking customers—the Equal Credit Opportunity Act, the Truth in Lending Act, the Truth in Savings Act, the Federal Deposit Insurance Act (which provides for FDIC insurance), and so on. In addition, you're protected by the Electronic Fund Transfer Act, which governs consumer rights involving errors in the handling of electronic deposits, payments or withdrawals, and limits on consumer liability for unauthorized transfers.

How are deposits at Internet banks insured?

The FDIC's coverage depends on whether the Internet bank has its own charter or if it's a division of a traditional brick-and-mortar bank. An Internet bank that has its own charter is covered just like any other FDIC-insured institution. Even if the Internet bank is a subsidiary or affiliate of another insured institution, as long as the Internet bank has its own charter (as indicated by its own FDIC certificate number) it is separately insured. That means that if you have deposits at both of those banks, your funds at the two institutions would be insured separately, even though the two institutions are affiliated.

But let's say the Internet bank is a division of a parent bank, not a separately chartered subsidiary. And let's suppose you have deposits at both banks... and the parent bank fails. Because they are both the same institution under the same charter, your deposits at the Internet bank would be added to those at the parent bank, and any funds over the insurance limit may not be fully protected. Here, the funds would be combined for insurance purposes even if the names of the two banks are different.

Establishing if an institution has its own charter can be complicated, so contact the FDIC if you have questions.

How can I be confident that my banking transactions over the Internet are secure?

First, make sure the bank's Web site describes its security procedures. Most banks use "encryption" to scramble account numbers and other private information to prevent unauthorized access. Take your own precautions by protecting your passwords and personal identification numbers (PINs), including not using birthdays or other numbers or words that may be easy for other people to guess. Also take steps to safeguard your banking information and other personal data. For example, never send a bank or anyone else an e-mail with personal information, such as your bank account, credit card or Social Security number, unless the e-mail is encrypted. For more information about security procedures or to discuss concerns about your online accounts, call the bank directly.

How can I best protect myself from errors or other disputes when banking long-distance?

As with any banking relationship, keep good records. That means, for example, deposit receipts, periodic statements, account disclosures, explanations of your rights and responsibilities, and copies of any contracts you agree to with the bank. If a dispute or a discrepancy arises, those documents may help support your claim. Also, monitor transactions and account balances regularly. If you find a discrepancy, promptly notify the bank.

Can banking regulators help me solve a problem with a far-away or Internet bank?

If you can't solve the problem directly with the bank, the institution's federal regulator—the Federal Reserve System, the FDIC, the Office of the Comptroller of the Currency or the Office of Thrift Supervision—may be able to assist you. Each federal regulator has a responsibility to investigate and respond to consumer complaints. The regulators, however, may not be able to assist you in a contractual dispute or if a matter is in litigation. If you're not sure which federal agency supervises a particular institution, ask any federal agency listed on our "For More Information" page or go to the Institution Directory on the FDIC's Web site. If the bank is a state-chartered institution, the appropriate state regulator also may be able to help you resolve a problem or complaint.

I've heard that deposit brokers can sell CDs (certificates of deposit) from banks across the country at higher interest rates than I can get from my local bank. Is there a catch?

Maybe, maybe not. Brokers sometimes can negotiate a higher interest rate on a bank-issued CD because they can bring a large amount of deposits to the bank. However, CDs sold by brokers also tend to be complex and may carry more risks than traditional CDs sold directly by banks. Also, some unscrupulous brokers have used misleading tactics to sell CDs with 20- or 30-year maturities to elderly people who thought they were purchasing CDs for only one year. For more information, see the Fall 2000 issue of FDIC Consumer News.

Is it safe to deposit money in a foreign bank that advertises in the U.S.?

It depends. There are foreign banks that have FDIC-insured branches in the United States. Funds deposited at those branches would be covered by the insurance rules up to the $100,000 insurance limit, the same as with an American bank that's FDIC-insured. There also are legitimate banks chartered outside the United States that may not be FDIC-insured, even if they have offices in the U.S. And, as FDIC Consumer News has warned in the past, there are unlicensed entities that use names very similar to the names of some of the largest banks in the world and even claim to have FDIC deposit insurance, but in reality are fraudulent. The bottom line: Know who you are dealing with before sending money or providing personal information. If you have doubts, contact the FDIC for assistance.

Final Thoughts

Times have changed. You have many more choices in financial service providers, including institutions thousands of miles away or only on the Internet. As with any business transaction, research your options, shop for the best deal, and be sure an unfamiliar company is legitimate before agreeing to anything. "You also must make informed choices that meet your needs and your lifestyle," says the FDIC's Kincaid. "Your neighbor may feel perfectly safe banking long-distance, but you may feel secure only if you can interact face-to-face with employees in a bank. It's what makes you comfortable.

Before You Do Business With a Distant Bank...
Research the institution. Just because you see the bank advertised in a newspaper or magazine or on the Internet, don't assume it's legitimate. Federal regulators can help (see "For More Information").

Be sure that deposits are FDIC-insured. Confirm that an institution is FDIC-insured by contacting the FDIC or by consulting the FDIC's database of insured institutions at www2.fdic.gov/idasp. Also find out if the bank is a division of another bank where you already have deposits, because having deposits at both places could put you over the insurance limit.

Understand the terms, conditions and costs. A great-looking offer may be offset by high fees or minimum-balance requirements. Make sure you're comfortable with your options for doing business with the bank long-distance. (Example: How would you make deposits and withdrawals?) Be suspicious if the deal sounds too good to be true.

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Last Updated 05/20/2002 communications@fdic.gov