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Temporary Unlimited FDIC Coverage for Noninterest-Bearing Transaction Accounts (Including IOLTA Accounts)

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Implementation of the Dodd-Frank Deposit Insurance Provision
Section 627 of the DFA (Eliminating the Prohibition on the Payment of Interest on Demand Deposit Accounts)
Disclosure Requirements of the Dodd-Frank Deposit Insurance Provision
Notice Requirement for Account Modifications (including Modifications to Demand Deposit Accounts to Allow Interest Accrual) and Sweep Accounts

Section 627 of the DFA (Eliminating the Prohibition on the Payment of Interest on Demand Deposit Accounts)

18. What actions are required of an IDI in order to begin paying interest on DDAs?

The FDIC has imposed no specific conditions that must be satisfied if an IDI chooses to offer new interest-bearing DDAs to its customers.  However, as is always the case, the FDIC expects IDIs to act in a commercially reasonable manner and to comply with applicable state and federal laws and regulations in establishing and marketing such accounts. 

If an IDI modifies existing DDA agreements to allow for the payment of interest, then (as discussed in more detail in FAQs 31 through 33) pursuant to 12 C.F.R. § 330.16(c)(3) the IDI must notify affected customers in writing that their DDAs are no longer fully insured as noninterest-bearing transaction accounts under the Dodd-Frank Deposit Insurance Provision.

19. Are all IDIs required to make interest-bearing DDAs available to depositors?

No.  IDIs are not required by any statute or regulation to provide interest-bearing DDAs to depositors.

20. Since IDIs can now pay interest on DDAs, can IDIs still offer NOW account products? 

Yes.  Congress did not abolish or change the law regarding NOW accounts when it enacted Section 627.  The laws (e.g., 12 U.S.C. 1832) and regulations (e.g., 12 C.F.R. § 204.130) regarding NOW accounts remain intact without any modifications.  IDIs can still offer NOW account products to eligible customers – individuals, nonprofit organizations and governmental units.  For-profit entities are not eligible to own NOW accounts. 

21. How does an interest-bearing DDA differ from a NOW account?

As outlined in the following table, there are several differences between DDAs (interest-bearing and noninterest-bearing) and NOW accounts:

NOW Accounts

DDAs

IDI reserves the right to require at least seven days' written notice prior to withdrawal or transfer of any funds (See 12 C.F.R. § 204.2(e)(2))

IDI does not reserve the right to require at least seven days' written notice of an intended withdrawal (See 12 C.F.R. § 204.2(b)(1))

Only individuals, nonprofit organizations and governmental units can own a NOW account; for-profit entities are expressly prohibited from holding NOW accounts

Any depositor can own a DDA


22. In light of the Dodd-Frank Deposit Insurance Provision and with the implementation of Section 627 of the DFA, how will the FDIC calculate deposit insurance coverage for government/public fund depositors?

Pursuant to the Dodd-Frank Deposit Insurance Provision, through December 31, 2012, the FDIC will insure in full the noninterest-bearing transaction accounts of all government/public fund depositors. 

Prior to July 21, 2011 (when IDIs could begin to offer interest-bearing DDAs), each official custodian of a government/public unit was also insured for up to $250,000 for the combined amount of all time and savings accounts at each separately-chartered IDI.

For the period from July 21, 2011 through December 31, 2012,

  • If the public unit is located in the same state as the IDI where the public funds are deposited, then each official custodian, in addition to having temporary unlimited deposit insurance coverage for all noninterest-bearing transaction accounts, will also be insured for (a) up to $250,000 for the combined amount of all time and savings accounts, and (b) up to an additional $250,000 for the combined amount of all interest-bearing DDAs.
  • If the public unit is located in a different state than the IDI where the public funds are deposited, then each official custodian, in addition to having temporary unlimited deposit insurance coverage for all noninterest-bearing transaction accounts, will also be insured for up to $250,000 for the combined amount of all time and savings accounts and interest-bearing DDAs.

After December 31, 2012, when the Dodd-Frank Deposit Insurance Provision terminates,

  • If the public unit is located in the same state as the IDI where the public funds are deposited, then each official custodian will be insured for (a) up to $250,000 for the combined amount of all time and savings accounts, and (b) up to an additional $250,000 for the combined amount of all (interest-bearing and noninterest-bearing) DDAs.
  • If the public unit is located in a different state than the IDI where the public funds are deposited, then each official custodian will be insured for up to $250,000 for the combined amount of all deposit accounts.

23. For government/public fund depositors, do IDIs need to pledge collateral on noninterest-bearing transaction accounts?

The requirement that collateral be pledged to secure public deposits at IDIs is imposed by state law and not by the FDIC; there is no provision in the FDIC regulations requiring collateralization of government/public fund deposits.  Although the FDIC provides temporary unlimited deposit insurance coverage for noninterest-bearing transaction accounts, the amount of collateral, if any, required to be pledged on such accounts will depend upon the applicable state law.  As a result, questions about this matter should be presented to the responsible State regulator or State Department of Banking.



Last Updated 08/09/2011 Online Customer Assistance Form