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Important Update: Changes in FDIC Deposit Insurance Coverage

The FDIC deposit insurance rules have undergone a series of changes starting in the fall of 2008. As a result, certain previously published information related to FDIC insurance coverage may not reflect the current rules. For details about the changes, visit Changes in FDIC Deposit Insurance Coverage. For more information about FDIC insurance, go to www.fdic.gov/deposit/deposits/index.html or call toll-free 1-877-ASK-FDIC (1-877-275-3342). For the hearing-impaired, the number is 1-800-925-4618.

Spring 2009

Sounds Good...But Are the Costs Greater Than the Benefits?
Financial services that may come with strings — and fees — attached

You'll often hear about a financial service that sounds like just what you need. But before you sign up, do you take the time to look at all the costs, read the fine print and really try to determine if the product is right for you? Here are examples of when it pays to be an educated consumer.

  • Overdraft programs that charge a sizeable fee for each bounced check or other withdrawals when there aren't enough funds in the account. According to a recent FDIC study of bank overdraft programs, the median fee charged to consumers was $27 for each check or withdrawal covered. Additional fees or interest charges are also sometimes imposed, such as when an account remains overdrawn. "These programs can become expensive quickly, especially if they're used repeatedly," said Mira Marshall, an FDIC Section Chief specializing in consumer issues.
  • Credit cards advertised to help repair a damaged credit history that come with big, hidden fees. In late December, the FDIC and the Federal Trade Commission won a major settlement against a marketing firm for misleading offers of a "subprime" credit card. The two government agencies alleged that the solicitations appeared to offer credit cards with a $300 credit limit, but consumers were immediately charged as much as $185 in inadequately disclosed fees, leaving them with as little as $115 in available credit. The company agreed to give customers $114 million in credits to help them pay fees that the company failed to properly disclose.
  • Companies offering to help people deposit their Social Security benefits directly into bank accounts may also sell overpriced products or divert the funds. In some cases, they solicit business for overpriced loans or other products with hidden fees that could be harmful to consumers, using high-pressure sales tactics. In other cases, certain check cashers, "payday" lenders and small retailers have reportedly diverted Social Security payments intended to be direct-deposited into the bank and used that money for repayments of high-cost loans or fees that the consumer owes them.
  • Deceptive offers of FDIC-insured certificates of deposit (see Shopping for a CD: Be Informed, Be Safe).
  • Potential problems with blank "convenience checks" from your credit card company (see Blank Checks from Your Credit Card Issuer Carry Risks and Costs).
  • In general, how can you protect yourself from a costly decision involving a financial product or service? Comparison shop. Look at the variety of products offered by your bank and a few competitors, then try to find the best deal to meet your needs. Also, before accepting an offer, make sure that you understand any fees associated with the product or service. Be especially cautious with fees for services you expect to use often. Ask about the least expensive options and look into changing your banking habits to avoid fees.

    For example, to avoid some of the more costly overdraft programs, you should find out if your bank allows you to link your checking account to a savings account or to an overdraft line of credit. These products generally are less expensive than programs that charge a large fee each time you incur an overdraft.

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    Last Updated 5/26/2009