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The term "transaction guarantee" refers to a U.S. program that insures all non-interest-bearing bank accounts and certain low-interest bank accounts that do not generate interest over a specified amount. The Federal Deposit Insurance Corporation (FDIC), an insurance company, established the Temporary Liquidity Guarantee Program (TLGP), which has two components. The first component is the Debt Guarantee Program, which insures unsecured debt. The second component is the Transaction Account Guarantee (TAG) program, which banks and other institutions often call the FDIC’s transaction guarantee program. This program is separate from the FDIC’s general deposit insurance coverage, which insures deposits up to a specified amount.
The FDIC’s transaction guarantee program is temporary. It provides unlimited coverage for specified accounts. Ordinarily, the FDIC insures deposits placed in banks and other savings institutions through its general deposit insurance coverage. The FDIC’s transaction guarantee program will provide additional coverage to protect accounts that exceed the FDIC’s general coverage.
To qualify for coverage under the transaction guarantee program, an account must not generate interest. The account also must allow the holder to make an unlimited number of deposits and withdrawals. Typically, these are checking accounts. The transaction guarantee program also includes certain low-interest accounts, such as Interest on Lawyer Trust Accounts (IOLTA’s) and Negotiable Order Withdrawal (NOW) accounts. The program does not place a limit on the amount covered.
Ordinarily, to obtain protection under the FDIC’s general deposit coverage, banks and other savings institutions must pay an insurance premium to the FDIC. If a bank fails, it will file a claim with the FDIC to pay account holders up to a specified amount. Under the FDIC’s transaction guarantee program, banks and other institutions must pay a separate fee to participate in the program. This will allow the institution to provide full coverage protection to certain types of account because there is no limit on the amount covered under the program. This means the transaction guarantee program will cover any amounts not protected under the FDIC’s general deposit insurance.
One purpose of the transaction guarantee program is to get banks to start lending to businesses and to individual consumers. The program, however, was designed to be a temporary response to widespread financial concerns stemming from recession, and it was set to terminate on 31 December 2010. Once the program expires, account holders will still have protection under the FDIC’s general deposit insurance coverage, which in 2010 insured up to $250,000 US dollars (USD) per account holder. This amount was expected to decrease to $100,000 USD on 31 December 2013. The FDIC protects account holders only if the bank pays the premium for the insurance coverage.