Legal-Ease: Unlimited FDIC protection and credit union protection

This column follows up on a previous column that mentioned the possibility of unlimited FDIC coverage for a bank depositor even if that depositor uses only one bank.

The FDIC is a federal government entity that provides insurance for those who deposit money in banks in the United States. For the coverage to apply, the bank holding a customer’s deposits must be an intentional participant in the FDIC’s insurance program and pay insurance premiums to the FDIC. The participating banks are subject to requirements as conditions of participation in FDIC insurance. Those requirements include stringent audits, reporting responsibilities that identify non-traditional risks and protocols and tools like security systems to protect physical money.

Bank failure can come from a variety of sources. Sometimes, there is fraud or mismanagement by the bank itself. However, the FDIC’s requirements tend to minimize that possibility. More often, bank customers have deposits in the bank that the customers can retrieve at any time. However, in order to get a higher return, the bank may have invested some of those “on demand” deposits in longer term investments that would provide the bank with higher interest. In other instances, a bank can promise an investor a certain rate of return followed by the bank having investments that are variable and provide the bank with a smaller rate of return in the short term. In any of these instances, the bank can run out of available money to repay depositors, or as it’s more commonly called, fail.

Regardless of why a bank fails, FDIC insurance can pay depositors’ claims with the FDIC’s reserves. Additionally, when the FDIC pays claims from customers of a certain bank, the FDIC usually takes control of the bank’s assets and operations, called a receivership, in order to sell the bank’s assets to try to recoup the insurance payouts caused by that bank’s failure.

FDIC insurance has limits. There are various categories of accounts in a bank, like trust accounts, entity accounts and individual accounts. The FDIC limits its coverage to $250,000 per customer, per account category, per bank.

Many banks across the country offer an ability to increase the FDIC insurance through cooperative systems with other banks. The systems re-invest a bank customer’s deposits among various participating banks, all of whom are also FDIC participating banks, in order for the amount technically invested in each bank to be below $250,000. One system used by several local banks is called “ICS”, and its information can be found at

Bank customers who want that ability to do business with one bank with almost unlimited FDIC protection must request the additional protection and agree to its terms.

Importantly, credit unions have a government administered deposit protection program that is managed by the National Credit Union Administration. The NCUA deposit protection program is very, very similar to the FDIC deposit protection program. Credit unions must agree to participate with the NCUA, just like banks must agree to participate with the FDIC. A list of NCUA-participating banks and information on NCUA protection is available at

Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at [email protected] or at 419-659-2058. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.