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

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

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Three Massachusetts banks now offer competitive online savings accounts. Should one rely on the State'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, 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 residing in New York and New England 1.17% on deposits up to $1 million in an online savings bank.  Salem Five Direct, a subsidiary of Salem Five Bank, offers new depositors 0.90% on online deposits up to $500,000.  BankFive Connect, a division of Bank Five, recently introduced an online savings account offering 0.90%, but which is only available to residents of certain states (and, quite amazingly, it is not available to residents of Massachusetts and Rhode Island).

These online banks have all had some customer service problems in the past, and none of them provides online banking interfaces or customer services comparable to Personal Savings by American Express or GE Capital.  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 will find that it makes more sense to stick with well-recognized online banks and their superior customer services.   Even many depositors with $1 million or so to deposit will 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 more than that amount in online savings accounts can find protections from Massachusetts’ DIF insurance and deposit amounts above FDIC limits in one or more of these Massachusetts-based online savings accounts.

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