Frequently Asked Questions
If all banks and credit unions have federal deposit insurance what difference does its rating make?
Consumers (and businesses) that exceed the deposit insurance limit could lose some of their money in a bank failure; it is surprisingly easy to go over the insurance limit without realizing it due to:
- interest payments;
- proceeds from the sale of a house;
- retirement accounts;
- death of a signer on the account;
- conditional clauses in trust documents;
- brokered deposits;
- and more.
Additionally, an acquiring institution is not obligated to keep paying CD rates at the rate contracted with the defunct institution. Interest rates are subject (likely) to drop, especially if they are above the market averages.
Businesses have another concern; if their bank fails they can lose their "line of credit" (source of funding) until they are able to find another lender.
Regardless of insurance limitations, individuals and businesses could be subject to disruptions in direct deposits if a bank is closed with no acquirer. The same goes for any bills that you have automatically set up to pay from your checking account.