Employee Benefits, CDs, and FDIC Coverage

Question: We have a customer who wants to move their CD out of our bank because their employer has placed their employee benefits plan in our bank. The customer's CD combined with his interest in the employee benefit account exceeds $100,000. We are not sure whether FDIC insurance covers this, and the customer will incur a penalty if he moves the CD before it matures next year.

Answer: You can tell the customer to keep the funds in your bank. Even after the CD matures, there is no need to move the funds. Individual deposits are calculated and considered separately from employee benefit plans for purposes of FDIC insurance coverage.

This rule may sound peculiar to some, but there is a public policy reason behind it. The purpose of FDIC deposit insurance is to build and maintain public confidence in the banking system. Also through deposit insurance, the FDIC builds faith in specific financial institutions and reduces the concerns that trigger moving funds from bank to bank whenever a rumor starts. The individual consumer does not have control over where the employer maintains the employee benefit funds and may not even know where they the funds are maintained. This rule relieves the consumer/employee from having to know that and it relieves the consumer from the worry of insurance surprises.

Copyright © 2001 Compliance Action. Originally appeared in Compliance Action, Vol. 6, No. 3, 4/01