WASHINGTON - When it comes to the money in your bank account, security has a price. And it's going up.
With the failure of IndyMac Bank and a dozen other institutions draining the government's deposit insurance fund well below its mandated level - and projections of more failures to come - federal regulators moved yesterday to replenish the fund, giving initial approval to a five-year plan that would more than double the amount banks pay to insure their deposits.
Bankers said they could afford the increase approved by the Federal Deposit Insurance Corp., which on average would cause premiums to rise to 13.5 cents per $100 of deposits from 6.3 cents. But they noted that higher premiums would add to the cost of doing business in already difficult times.
That means consumers should expect slightly higher fees and lower interest rates, said Ed Mierzwinski, consumer-program director for the U.S. Public Interest Research Group.
Federal officials continually boast that no customer has ever lost a cent of a federally insured deposit, a guarantee made since the Great Depression that has kept consumers from draining their bank accounts in subsequent financial crises. To expand that confidence, Congress included in the recently approved Wall Street bailout legislation a temporary increase in the coverage for individual accounts - to $250,000 from $100,000.
But to keep that promise, the FDIC needs more money.
The deposit insurance fund had $45.2 billion as of June 30, representing 1.01 percent of insured domestic deposits, its lowest ratio since 1994. The fund is not supposed to fall below 1.15 percent, and the FDIC prefers it to be at 1.25 percent.
The proposed premium increases, which would take effect Jan. 1, would pump $10 billion into the fund next year and bring the ratio to insured deposits up to 1.26 percent after five years.