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FDIC change won’t crash bank accounts

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Dear Dr. Don,
I used to keep accounts in five or six banks, keeping each account under the $100,000 FDIC insurance protection limit. In January of this year, I was down to just two banks (offering the highest rates) with two accounts of about $240,000 each. These accounts will mature in December this year.

If FDIC goes back to $100,000 protection, I’ll be going back to my old ways of five or six banks. I just found out two other friends are doing the exact same thing. In my small circle of people, we have three people planning to take money out from banks in a big way in December. Nationwide, will it cause a problem for banks, if during that couple of weeks, large amounts of people take money out of their accounts? Can smaller banks handle that kind of change?

I think the government should think about this issue now and let people know. We certainly cannot afford another man-made crisis.
— John Jericho

Dear John,
You’re smart to make sure your deposits are insured by the Federal Deposit Insurance Corp. The temporary increase in deposit insurance limits has allowed you to consolidate some accounts, and now you’re considering what will happen when the limits revert back to $100,000 per depositor in a nonretirement account, and $250,000 in IRAs and certain other retirement accounts.

The FDIC has extended the higher limits through Dec. 31, 2013, as presented in its

Deposit Insurance Simplification Fact Sheet.” Here’s an excerpt:

The standard insurance amount currently is $250,000 per depositor. The $250,000 limit is permanent for IRAs and other certain retirement accounts. The $250,000 limit is temporary for all other deposit accounts through December 31, 2013. On January 1, 2014, the standard insurance amount will return to $100,000 per depositor for all account categories except IRAs and other certain retirement accounts, which will remain at $250,000 per depositor.

Your concern about the effect on banks if depositors adjust their account relationships is well-reasoned, but banks can replace lost deposits with borrowed reserves, at least over the near term. That ability gives them the flexibility to handle a fluctuating deposit base.

Read more Dr. Don columns for additional personal finance advice.