What Is DIF Insurance (Massachusetts Depositors Insurance Fund) – How It Works


If you’ve gotten a checking account – or although no longer – you’ve most likely heard of FDIC insurance coverage. FDIC insurance coverage is deposit insurance coverage overseen by way of the Federal Deposit Insurance Corporation, a federal entity created by way of the Banking Act of 1933.

FDIC insurance coverage promises the protection of deposits in checking, financial savings, and CD accounts held with FDIC member banks. When a member financial institution fails, the FDIC reimburses each and every depositor as much as $250,000 in line with account. As of early 2023, there are about 4,800 FDIC member banks, consistent with our research of FDIC information.

Origins & History of the Depositors Insurance Fund (DIF)

The FDIC doesn’t run the United States’ simplest deposit insurance coverage scheme. The Depositors Insurance Fund (DIF) is a lesser-known, less-widespread scheme that gives supplemental coverage for budget deposited with Massachusetts-chartered financial savings banks.

Massachusetts DIF isn’t to be puzzled with the Deposit Insurance Fund, which is the fund the FDIC makes use of to reimburse account holder deposits misplaced because of member financial institution screw ups.

What Are Savings Banks?

Savings banks basically settle for financial savings deposits and use the ones budget to factor mortgages, non-public loans, trade credit score, and different sorts of credit score automobiles. However, they incessantly administer checking accounts as smartly.

Many smaller group banks are structured as financial savings banks. DIF club is obligatory: in case your financial institution is structured as a financial savings financial institution and founded in Massachusetts, your deposits are lined by way of DIF insurance coverage.

What Is a Depositors Insurance Fund Bank?

A Massachusetts Depositors Insurance Fund financial institution is any financial savings financial institution chartered in Massachusetts. DIF protects all Massachusetts-chartered financial savings financial institution deposits that aren’t safe by way of FDIC insurance coverage, which is any quantity deposited in far more than the FDIC’s $250,000 in line with account restrict.

The FDIC and DIF mix forces to supply Massachusetts-chartered banks’ depositors with the rustic’s maximum tough deposit insurance coverage protections. During primary downturns, such because the overdue Eighties/early Nineties financial savings and mortgage disaster (when 19 Massachusetts banks failed) and the overdue 2000s monetary disaster, DIF used to be greater than ok to hide depositors’ losses.

According to DIF, “The mixture of FDIC and DIF insurance coverage supplies consumers of Massachusetts-chartered financial savings banks with complete deposit insurance coverage on all their deposit accounts. No depositor has ever misplaced a penny in a financial institution insured by way of each the FDIC and the DIF.”

What Is the Maximum Coverage Amount for a Depositors Insurance Fund Bank?

With DIF, there’s no most insured quantity in line with account. Depositors’ budget theoretically experience limitless protections. However, as maximum banks impose most deposit limits – generally starting from $1 million to $10 million in line with account – there’s a realistic higher restrict to DIF protection.

How Did the Massachusetts DIF Begin?

In 1932, after a spate of Massachusetts-chartered financial institution screw ups, the Massachusetts state legislature voted to create the Mutual Savings Central Fund (MSCF), DIF’s predecessor. A concurrent act of the legislature created the Co-operative Central Bank, which supplied deposit insurance coverage for account holders with credit score unions and cooperative banks founded in Massachusetts.

As the United States’ first state-sanctioned deposit insurance coverage fund, MSCF used to be designed to supply complete deposit coverage for person and trade depositors with failed member banks. After the advent of the FDIC, which to start with reimbursed deposits as much as $5,000, MSCF’s constitution used to be changed to hide deposits above and past the FDIC’s protection restrict. It’s unclear when MSCF modified its title to DIF.

Key Features of DIF Insurance Coverage

The Massachusetts Depositors Insurance Fund has some key advantages — and necessary restrictions — for banking consumers in Massachusetts.

Location and Residency

DIF insurance coverage simplest covers deposits with Massachusetts-chartered financial savings banks. If your financial savings financial institution is chartered in Connecticut or New Hampshire, DIF can’t can help you.

On the intense aspect, DIF doesn’t impose any residency restrictions. If you reside in Connecticut, New Hampshire, or another state, your Massachusetts-chartered financial savings financial institution deposits are safe. This is the most important attention in case you do trade with a web-based financial institution founded in Massachusetts and is the most important consider why such a lot of Massachusetts-based on-line banks thrive.

DIF insurance coverage additionally covers deposits made at any member financial institution department, although that department is positioned outdoor of Massachusetts. So in case you reside in New Hampshire, as an example, and do trade with a Massachusetts-based financial institution that operates a department for your place of birth, your deposits are safe.

No Added Cost

DIF insurance coverage is loose for all depositors. You don’t want to pay any charges or surcharges to get pleasure from this system.

No Application Requirements

Like FDIC insurance coverage, DIF insurance coverage robotically covers all new depositors from the instant they open an account with a member financial institution. You don’t need to fill out an utility to take part in this system or supply any knowledge past what’s essential to open the account.

No Coverage for Investment Products

Like FDIC insurance coverage, DIF insurance coverage doesn’t duvet investments in mutual budget, annuities, shares, bonds or different funding merchandise. Only deposit accounts – in most cases checking, financial savings, CDs, and cash marketplace accounts – are lined.

DIF Members, Funding, Assets & Oversight

Massachusetts DIF club is topic to modify as banks get started, fail, or exchange their constitution location. According to the Depositors Insurance Fund, as of 2023, DIF contributors come with the next:

  • Adams Community Bank
  • Athol Savings Bank
  • Avidia Bank
  • Bank of Canton
  • BankFive
  • Barre Savings Bank
  • BayCoast Bank
  • Bay State Savings Bank
  • Belmont Savings Bank
  • Blue Hills Bank
  • Bridgewater Savings Bank
  • Bristol County Savings Bank
  • Brookline Bank
  • Cambridge Savings Bank
  • Cape Ann Savings Bank
  • Cape Cod Five Cents Savings Bank
  • Chicopee Savings Bank
  • Clinton Savings Bank
  • Country Bank
  • Dedham Institution for Savings
  • Eagle Bank
  • East Boston Savings Bank
  • East Cambridge Savings Bank
  • Easthampton Savings Bank
  • Florence Savings Bank
  • Greenfield Savings Bank
  • Hampden Bank
  • Hingham Institution for Savings
  • Lee Bank
  • The Lowell Five Cent Savings Bank
  • Marblehead Bank
  • Marlborough Savings Bank
  • Martha’s Vineyard Savings Bank
  • Merrimac Savings Bank
  • Middlesex Savings Bank
  • Millbury Savings Bank
  • Monson Savings Bank
  • MountainOne Bank
  • Newburyport Five Cents Savings Bank
  • North Brookfield Savings Bank
  • North Easton Savings Bank
  • North Middlesex Savings Bank
  • Pentucket Bank
  • PeoplesBank
  • The Provident Bank
  • Randolph Savings Bank
  • Salem Five Bank
  • The Savings Bank
  • Seamen’s Bank
  • South Shore Bank
  • Southbridge Savings Bank
  • SpencerBANK
  • UniBank
  • Washington Savings Bank
  • Watertown Savings Bank
  • Webster Five
  • Winchester Savings Bank

Massachusetts DIF Funding Mechanisms & Investments

Though DIF’s predecessor used to be created by way of a legislative act, the fashionable group operates as a non-public group funded by way of its member banks. Each DIF member is needed to give a contribution an annual overview, or cost, to the overall fund. Each member’s overview is according to the entire price of its consumers’ deposits.

According to DIF’s 2022 annual record, the fund took in a complete of $5.43 million in tests all through the 2022 fiscal yr, towards $4.74 million in tests all through fiscal yr 2021. Individual member banks’ tests aren’t disclosed.

DIF invests assessed budget in 3 primary categories of securities: short- and long-term U.S. treasuries, debt responsibilities issued by way of U.S. government-sponsored enterprises (federally-created monetary products and services firms, reminiscent of Fannie Mae and Freddie Mac), and privately issued mortgage- and asset-backed securities. DIF invests the majority of its property in responsibilities assured by way of the Federal Government.

Since the worth of and proceeds from those securities can exchange (and DIF’s bills vary relying on a number of elements), the fund’s internet source of revenue isn’t consistent from yr to yr. For example, consistent with its 2022 annual record, DIF’s internet 2022 source of revenue got here to $583,466. Its 2021 internet source of revenue amounted to $853,639.

DIF’s general property – together with money, money equivalents, and securities – got here to about $94.83 million in 2022 and $88.42 million in 2021. By comparability, its insured extra deposits (depositors’ budget insured above the FDIC restrict) amounted to $28.57 million in 2022 and $27.14 million in 2021. In different phrases, DIF used to be ready to hide 1.70% of depositors’ extra budget in 2022 and 1.87% of extra budget in 2021.

Investment Funding Mechanism

Massachusetts DIF Supervision & Member Oversight

DIF is overseen by way of the Massachusetts Division of Banks, a state regulatory authority. By legislation, it should additionally put up to unbiased audits by way of a non-public, third-party auditor. On a day by day foundation, it’s run by way of a president and government workforce. The government workforce periodically stories to a 13-member board made out of executives from DIF member banks and different primary employers with a presence in Massachusetts.

Who Audits DIF?

DIF doesn’t have the authority to independently read about its member banks’ funds. However, it does require each and every financial institution to put up a quarterly monetary commentary.

DIF additionally works with the Massachusetts Division of Banks, the FDIC, and the Federal Reserve, all of which have criminal authority to audit banks founded in Massachusetts. DIF is determined by stories from those entities to definitively decide whether or not a member financial institution is at risk of failing or changing into not able to pay off its responsibilities.

What Happens When a Depositors Insurance Fund Bank Fails?

In the development {that a} failure seems drawing close, DIF data an anticipated legal responsibility on its steadiness sheet. If and when a member financial institution fails, DIF steps in if essential and as required by way of legislation to reimburse depositors for any budget misplaced above the FDIC insurance coverage restrict.

What Happens When a DIF Bank Is Bought or Goes Out of Business?

A bankrupt member financial institution’s club normally lapses if it’s bought out of chapter by way of some other DIF member or another way recapitalized. Regardless of its solvency, a DIF member additionally loses its club when its property are bought by way of a non-DIF member financial institution (in different phrases, a financial institution headquartered outdoor Massachusetts) and it due to this fact abandons its Massachusetts constitution.

Final Word

Massachusetts is house to almost 7 million folks, or more or less 2% of the American inhabitants. Most Americans have by no means lived within the Bay State, and lots of have by no means even set foot in it. But that doesn’t imply DIF insurance coverage is of no import to citizens of, say, Texas or California.

For something, Americans are cellular. Even if you haven’t any hobby in shifting to Massachusetts, yow will discover your self forced by way of an employer or some unexpected lifestyles cases to take action someday. In the midst of looking for the appropriate the city or group on your circle of relatives, you’re more likely to to find your self on the lookout for a neighborhood financial institution that protects deposits with DIF insurance coverage.

Alternatively, yow will discover your self weighing the most efficient bank account or financial savings account choices from one of the vital many on-line banks headquartered in Massachusetts, all of which give DIF insurance coverage along with FDIC insurance coverage. Or, it’s good to reside in a state that borders Massachusetts, the place Bay State banks are much more likely to have satellite tv for pc branches.

And, in case you’re concerned about public coverage or the legislative procedure, it’s good to even cling up DIF insurance coverage as a fashion for extra tough deposit account protections in your house state. After all, each DIF and FDIC insurance coverage – essential shopper protections taken as a right lately – had been exceptional sooner than the Thirties.

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