The Depositors Insurance Fund (DIF) was created in 1934 and, while independently operated, includes all Massachusetts licensed banks as members. According to DIF’s website, the Fund extends coverage above and beyond FDIC limits to depositors at member banks regardless of their states of residency.
DIF has over $350 million in assets. During the recession of the early 1990s, the worst financial period in the history of the Massachusetts savings bank industry, DIF paid out more than $50 million to protect over 6,500 depositors in 19 failed member banks. During the 2008 to 2011 bank crises, the DIF was not affected by the spate of bank failures as none of its members were among those banks that either failed or were seized by the FDIC. Funds in the Massachusetts DIF are highly regulated today by the Massachusetts Division of Banks, and the fund again has significant reserves on hand to cover failures of member banks.
There are now three highly competitive online banks in Massachusetts, all members of the DIF. Assuming the DIF website is correct that all depositors are covered regardless of their state of residency, a depositor who might otherwise be inclined to keep online savings accounts below the FDIC’s individual $250,000 insurance limit could now be covered in depositing well over that amount in a DIF member bank.
EBSBDirect, a subsidiary of East Boston Savings Bank, currently offers online depositors 2.50% on deposits up to $1 million in an online savings account. Bank 5 Connect and Salem Five Direct are also Massachusetts-based banks that are covered by DIF and that have been competitive in the online savings / money market and CD spaces in recent years.
Some Massachusetts-based banks have had some customer service problems in the past, and they may not provide online banking interfaces or customer services comparable to Ally or Marcus. Salem Five Direct has bank fees that are excessive for online savings accounts and make it a less than desirable place to put cash that may be needed quickly and/or often. BankFive Connect has a website with nice pictures but relatively sophomoric customer service.
Depositors for whom FDIC limits are not an issue may find that it makes more sense to stick with well-recognized online banks and their superior customer services. Even many depositors with $2 million or so to deposit in online savings accounts may find that they can achieve their goals and stay within FDIC limits by distributing their money among several banks with outstanding customer service. However, depositors seeking to hold significantly larger amounts in online savings and money market accounts may find the protection they require from Massachusetts’ DIF insurance and deposit amounts above FDIC limits in one or more of these Massachusetts-based online savings and money market accounts.