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What is DIF?

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  • Written By: John Lister
  • Edited By: Kristen Osborne
  • Last Modified Date: 08 September 2016
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DIF can refer to two separate programs designed to deal with bank failures. One, the Deposit Insurance Fund, is a federal program operated by the Federal Deposit Insurance Corporation. The other, the Depositors Insurance Fund, is a state program in Massachusetts. It is particularly important not to confuse the two, as the state program covers money above and beyond that covered by the federal scheme.

The federal version of the DIF, the Deposit Insurance Fund, is an insurance plan that guarantees anyone who has money deposited in a member bank will get back at least some of the money if the bank fails. As of 2011, the plan guaranteed to cover all deposits up to a limit of $250,000. Most types of deposits are included, but stocks, mutual funds, money funds and US Treasury securities are excluded, as are the contents of safe deposit boxes.

This DIF is operated by the Federal Deposit Insurance Corporation, which is owned by the US government. It previously ran two programs, the Bank Insurance Fund and the Savings Association Insurance Fund. These merged into the DIF in 2006.

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Banks wanting to be covered by the plan must follow rules governing their liquidity and reserves, and pay an insurance premium to the fund. In return, the bank can then promote that deposits are insured and that this insurance "is backed by the full faith and credit of the United States government." As well as compensating investors, the money in the fund can be used to cover the costs of the FDIC operating a bank that has failed.

The state program known as DIF is the Depositors Insurance Fund, which only operates in Massachusetts. It works in a similar fashion, but covers only savings above the federally-insured $250,000. Although it has this lower limit, there is no upper limit to the coverage. This means that an investor in a Massachusetts bank covered by the plan is guaranteed not to lose any money whatsoever if the bank fails.

The reason for the confusing similarity between the names is that the Massachusetts program came first. It was set up in the 1930s as a response to bank failures at the time, and has even been credited as the inspiration for the Federal Deposit Insurance Corporation. To avoid confusion, most banks in Massachusetts will only use DIF to refer to the state scheme, and will instead refer to the federal scheme as "FDIC protection."

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