Newest Version of Bailout Bill May Raise FDIC Insurance Limits to $250,000

To try and attract more mainstream support tfor the bailout bill, legislators have added language that raises the FDIC insurance limit from $100,000 to $250,000. For BestCashCow readers, this is good news.

The FDIC limit has not been raised in two decades and after inflation, consumers receive far less protection today on their deposits than in the 1980s. The raise will make it easier to deposit larger sums in fewer banks and hopefully increase confidence that the money will not be lost. The hope is that this increased confidence will eliminate or at least reduce the kinds of bank runs that brought down Indymac, WaMu, and Wachovia. It will also reassure banks that their deposit bases are stable so that they can begin lending again.

While the legislation is only supposed to raise the limit for 1 year, I think once it's been increased, it will be exceedingly diffifult to reduce coverage levels.

Is this a good idea? For most of us who are looking for the best rate, yes. But if I look at it less selfishly, I do think there are problems. It rewards banks who are not as well-managed and punishes the stronger ones. It also increases the potential liability of the FDIC. Today, $45 billion in FDIC funds protects $4.5 trillion in deposits. This multiplier will only increase under the new plan.

Still, at a time where there really aren't any great alternatives, at least this proposal helps the savers of the world. And that's a good thing.