Federal and State Tax Revenues Are Not the Source of FDIC Insurance Funding
When the FDIC is forced to reach into its Deposit Insurance Fund for funds to cover the losses resulting from a failed bank, it is not reaching for tax revenues collected from citizens. As mentioned above, insured banks pay the premiums that make up most of the FDIC’s insurance fund. Additionally, the FDIC has an investment portfolio of U.S. Treasury securities, the interest earnings of which are also deposited into the fund.
Interest Accruing on Deposits Stops as Soon as the Bank is Closed
The traditional deposit accounts insured by the FDIC are checking, savings, Money Market, and Certificate of Deposit (CD) accounts. Depending on the banking institution, most of these accounts will bear recurring interest commensurate with the amount deposited by the consumer, and for term lengths determined by the type of account. After a bank fails and is closed by the FDIC, the rate of interest formerly guaranteed by the failed bank is no longer effective. The bank or financial institution acquiring the failed bank’s assets and/or loans has the choice to maintain the previous interest rates or else determine new rates. Depending on the position of the acquiring bank, those rates could be higher or lower, but the bank is under no obligation to uphold a previous rate of interest. All interest accrued up until the point of the bank closing is secured by the FDIC insurance fund up to the insurance limit.
No Buyer Means You’re Probably Going to Lose Interest
In most cases, the FDIC is able to find and arrange for another institution to purchase the assets and deposits of a failed bank. However, from time to time there is a lag between failure and acquisition that could cost you interest earnings. The “in-between” could be as long as a week or two, and that could mean significant interest depending on the size of your account.