FDIC's Temporary Liquidity Guarantee Program Provides Unlimited Coverage on Participating Bank Checking Accounts

BankDeals posted an interesting article that discusses one aspect of the FDIC's Temporary Liquidity Guarantee Program, the unlimited coverage it provides to participating banks' checking accounts. The program states that:

"All funds in noninterest-bearing transaction deposit accounts held in domestic offices and insured branches in Puerto Rico and U.S. territories and possessions of participating FDIC-insured institutions will be fully guaranteed under the transaction account guarantee component of the Temporary Liquidity Guarantee Program. A "noninterest-bearing transaction account" is defined as a transaction account with respect to which interest is neither accrued nor paid and on which the insured depository institution does not reserve the right to require advance notice of an intended withdrawal. This definition encompasses traditional demand deposit checking accounts that allow for an unlimited number of deposits and withdrawals at any time. This definition does not encompass interest-bearing money market deposit accounts (MMDAs).

However, for purposes of the transaction account guarantee program, the FDIC is including in the definition of a noninterest-bearing transaction account:

• Accounts commonly known as Interest on Lawyers Trust Accounts (IOLTAs) and functionally equivalent accounts; andNegotiable order of withdrawal accounts.
• (NOW accounts) with interest rates no higher than 0.50 percent for which the insured depository institution at which the account is held has committed to maintain the interest rate at or below 0.50 percent."

What this means is that you could have $1,000,000 in a checking account at Citi and it will be fully covered. In addition, you could have the same amount in a low yielding NOW account and also receive unlimited coverage.

This coverage is not just for Citi but for any bank that participates in the Temporary Liquidity Guarantee Program. Coverage provided by this program is in addition to and seperate from the coverage provided by "regular" FDIC insurance. The FDIC says:

The insurance coverage on noninterest-bearing transaction deposit accounts is over and above the $250,000 in coverage provided to a customer already. For example, if a customer has $500,000 in a noninterest-bearing transaction deposit account and $250,000 in a certificate of deposit, the FDIC would fully insure the entire $750,000.

If you are planning to open a checking account with a large sum of money, you should first ask the bank if they are participating in this program.