Massachusetts' Depositors Insurance Fund (DIF) Is Important for High Net Worth Depositors to Consider

Many Massachusetts-based banks now offer competitive online savings accounts. Can depositors rely on the Commonwealth's Depositors Insurance Fund and deposit amounts over FDIC limits in these banks?

The Depositors Insurance Fund (DIF) was created in 1934 and, while independently operated, is monitored by the Massachusetts Division of Banks. It protects all deposit accounts (savings accounts, money markets and CDs) from individuals and corporations to $1 million dollars (or four times above and beyond the current FDIC insurance). For many years, DIF included all Massachusetts licensed banks as members, but there are banks licensed in Massachusetts that are not members. Radius Bank was never a DIF member (and LendingClub which acquired Radius Bank is not a member). Rockland Trust is not a member (and has acquired East Boston Savings Bank in November 2021 so deposits there are no longer covered). Cambridge Savings Bank, which owns Ivy Bank, also announced its intention to withdraw from DIF in 2021. Therefore, you should not assume that because a bank in licensed in Massachusetts that it is a DIF member. Rather, you should always look for the DIF logo next to the FDIC logo. If there is any uncertainty, you should check the DIF's member listing here.

According to DIF’s website, the Fund

DIF has approximately $500 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 banking 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.

In recent years, we have seen competitive online rates from at least four online banks that are owned by DIF member banks (BankFive Connect, Salem Five Connect, Norwood Bank, MutualOne Bank). 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 for deposits up to $1 million in an online account with one of those banks.

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It however should be noted that 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.

Ari Socolow
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to bank transparency and the climate crisis. Since co-founding BestCashCow in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.

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