Deposit Insurance Fund (DIF): Protecting Deposits in Addition to FDIC Insurance – in Massachusetts
In America, bank deposits up to $250,000 per depositor are covered against bank default by FDIC. However, what happens if you have more than $250,000 on deposit with a single bank? If you live in Massachusetts, you may be in luck. The Depositors Insurance Fund (DIF) is a little-known bank deposit insurance agency that provides a similar function to FDIC, but it covers deposits exceeding the $250,000 FDIC limit. Although only a small number of banks participate in the DIF program, if you bank with one of them, your deposits will not be limited to insurance coverage of $250,000.
There is some degree of understandable confusion about what DIF is because DIF also stands for Deposit Insurance Fund, which is the funding source for insurance claims paid to depositors through the FDIC when a bank fails.
Let’s take a look at both versions of the DIF – the Massachusetts Depositors Insurance Fund, and the FDIC Deposit Insurance Fund which covers banks nationally, including those found on our Best Savings Account list here.
What is the Depositors Insurance Fund?
Available only to depositors of select Massachusetts banks, the Depositors Insurance Fund is relatively unknown.
To the surprise of many:
The Depositors Insurance Fund has been insuring deposits since 1934, and it works in conjunction with the FDIC to provide insurance coverage on bank deposits exceeding the $250,000 per depositor limit provided by the FDIC. However, not all banks in Massachusetts are part of the DIF program, and only select banks participate. Those banks contribute to a dedicated insurance pool for the DIF, which provides them with an opportunity to accept deposits in excess of $250,000 that will still be fully insured against bank default.
Since all DIF banks are participating FDIC members, the first $250,000 in a depositor's account will be covered by FDIC insurance. Only the amount of the depositor's balance exceeding $250,000 will be covered by DIF insurance. When a depositor makes a deposit into a DIF member bank, there is no additional application to fill out, nor are there any extra fees that need to be paid.
As of October 31, 2019, the DIF had funds available of nearly $398 million, insuring deposits of over $16.3 billion, giving the fund a coverage ratio of 2.43%. Though this ratio seems low, it is above the 2% ratio generally considered necessary to insure excess deposits under severe financial circumstances. DIF/FDIC literature confirms that no depositor has ever lost money in an account insured by DIF/FDIC.
Deposits covered by DIF are similar to those covered by FDIC. You must have your funds on deposit with a participating DIF bank to enjoy the coverage. The coverage includes checking, savings, NOW accounts, money markets, certificates of deposit, and retirement accounts. Any financial securities held through a participating bank are not covered by either insurance program. FDIC and DIF coverage are limited strictly to bank deposits.
49 banks participate in the DIF, with most being located in Massachusetts. The 10 largest participating banks include East Boston Savings Bank, Salem Five Bank, Middlesex Savings Bank, Cape Cod Five Cents Savings Bank, North Easton Savings Bank, Bay Coast Bank, PeoplesBank, Bristol County Savings Bank, South Shore Bank, and Cambridge Savings Bank.
If a participating Massachusetts bank fails, the insurance applies automatically, much as it does when FDIC intervenes in a bank failure. There are no special steps you need to take to file a claim for your money, and you will not be required to complete any special applications or go through any additional procedures.
While there is no official limit on how much of a consumer's deposits can be covered by the DIF, many banks impose a limit, which can be anywhere from $1 million to as much as $10 million. Even though the fund has been established to cover banks located in Massachusetts, you do not need to be a resident of the Commonwealth for your deposits to be covered.
Bank failure: The process for deposits covered by the DIF and FDIC
If you have funds on deposit with a participating Massachusetts bank, and that institution fails, there are no special steps you’ll need to take to file a claim for your money.
The insurance applies automatically, much as is the case when FDIC intervenes in a bank failure.
You will not be required to complete any special applications or go through any additional procedures.
But while there’s no official limit on how much of a consumer’s deposits can be covered by the DIF, many banks do impose a limit.
That can be anywhere from $1 million to as much as $10 million.
Residency is important
Even though the fund has been established to cover banks located in Massachusetts, you don’t need to be a resident of the Commonwealth for your deposits to be covered.
You can live in a neighboring state – or any other state – and your deposits will be covered as long as they are held in a participating bank.
Just as important, the protection is free to all depositors.
If you’re confused about the difference between the Depositors Insurance Fund operating in the state of Massachusetts, and the Deposit Insurance Fund that forms the insurance fund for the FDIC, you have every right to be.
But with either agency, awareness would only be on a limited basis anyway.
In the case of the Depositors Insurance Fund, you would only need to know about it if each of the three apply:
- You’re a resident of Massachusetts
- You have funds in one of the 49 banks participating in the state DIF fund
- You have in excess of $250,000 in any one bank
But with the Deposit Insurance Fund from the FDIC, you’ll never know it exists at all.
And that’s a sign that the insurance funds are doing their job.
We’re able to hold money on deposit with banks, not be concerned with losing it in a bank failure, and it all happens completely out of sight.