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FDIC 99-year Payment Rule

Ravenous Wolf

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FDIC 99-year payment rule is urban myth

By Don Taylor, Ph.D., CFA, CFP • Bankrate.com


Dear Dr. Don,

About a year ago, I was told by my bank manager that the Federal Deposit Insurance Corp. is only obligated to pay off 7 percent of the value of my deposits and that it has 99 years to pay off the balance. I have asked several others in the banking business. They confirmed that it is true. Have you ever been advised of this?

-- Jimmy Juxtapose

Dear Jimmy,

This is a banking urban legend that keeps popping up in various blogs and posts. The Better Business Bureau and the FDIC got together in 2006 to publish a news alert on the topic. Teri Cullen, writing for The Wall Street Journal, covered it in a blog post titled "FDIC Myth Busters" in November 2007.

I'll give center stage to the FDIC with this excerpt from its Spring 2006 Consumer News publication feature, "Misconceptions: A Top 10 List":

Misconception Number 3: If a bank fails, the FDIC could take up to 99 years to pay depositors for their insured accounts.

This is a completely false notion that many bank customers have told us they heard from someone attempting to sell them another kind of financial product. The truth is that federal law requires the FDIC to pay the insured deposits "as soon as possible" after an insured bank fails. Historically, the FDIC pays insured deposits within a few days after a bank closes, usually the next business day. In most cases, the FDIC will provide each depositor with a new account at another insured bank. Or, if arrangements cannot be made with another institution, the FDIC will issue a check to each depositor.

A recent column, "U.S. government stands behind deposits," discusses FDIC-insured deposits in greater detail, but let's retire the 99-year payback rule myth.

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