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Normally, when I want insurance coverage (e.g. for my car and house), I have to pay a premium to the insurer. My bank account comes with deposit insurance to insure me against bank collapse. It looks like I do not have to pay any premium for the insurance coverage. Is that the case? If so, who is paying the insurance premium?

  • "My bank account comes with deposit insurance...". In the US, only for some types of accounts, only insured up to the FDIC limit (per owner/co-owner). US FDIC does not insure financial instruments: stocks, bonds, money market funds, U.S. Treasury securities (T-bills), safe deposit boxes, annuities, and insurance products. – smci Jun 17 at 21:15
  • But anyway, since essentially all (sub-$250K) checking,savings,MMA accounts are insured, why doesn't the question of "who pays" conceptually count the same as who pays any other overhead costs the bank has: payroll, building leases, compliance dept, advertising etc. Unless you really mean "Does the bank pay the FDIC for the insurance?" – smci Jun 17 at 21:17
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If you are asking who sends the insurance payment to the (presumably) government insurer, the bank does. You'll never see a "deposit insurance" fee.

In economics, however, there is the concept of "incidence" which seeks to determine who actually pays a fee or a tax. In practice, for example, the incidence of payroll taxes paid by the employer fall almost completely on the employee in the form of lower salaries. Similarly, in practice, it is customers that ultimately pay the cost of deposit insurance in the form of lower rates and various fees.

That said, deposit insurance is rather inexpensive. In the US, for example, banks pay between 1.5 and 40 cents per $100.00 of deposits with most deposits tending to the low end of that range. If you have, say, $10,000 in a bank savings account, that means that the bank is paying between $1.50 and $40 a year for deposit insurance on your balance. If you're at a large, well established bank, they're probably paying much closer to $1.50 than $40 a year.

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    +1 for looking to the insurance rates – 0xFEE1DEAD Jun 14 at 14:30
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    I’m surprised I’ve never heard this question or answer before. Very interesting. – Ryan Jun 14 at 22:52
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    The profitability of banks (very high proportionally compared to most industries) and the fact that new deposits are effectively their "input resource" means that there may well be a much higher incidence of these kinds of expenses as opposed to in other industries (like personal insurance, retail, etc.). I think it would be hard to say without a proper study, which would be hard to do (hence why I'm not answering myself). – Joe Jun 15 at 15:10
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    It would be more accurate to say that the insurance fees come from the difference between loan interest rates and deposit interest rates, and it's something of a philosophical question as to whether that counts as "borrower pays" or "depositor pays". – Mark Jun 16 at 0:32
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    @Mark It is not merely a philosophical question to as to whether the borrower pays or depositor pays. The well-established concept of "incidence" in economics can be used to get a quantitative answer. The fee burden to the depositor depends on the price elasticity of supply relative to the price elasticity of demand. See: Tax incidence – Flux Jun 16 at 2:43
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In all cases the customers pay the insurance, they just don't see it on the monthly statement. If you are a member of a US credit union it is possible you might see a line in their annual report. If you are looking at the investor reports for a banking company you might see it listed in the filed financial statements.

The interest the bank charges for loans is to cover all their expenses, everything left is profits. The expenses include: interest paid on deposits, employee salaries and benefits, amount lost to bad debts, equipment costs, rent, electricity, and government fees. Those fees include deposit insurance.

Whenever you have ask who pays. It is always the customers. The company should hopefully be able to set their prices to cover all their expenses, and thus be profitable.

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    +1 for "Whenever you have ask who pays. It is always the customers." – 0xFEE1DEAD Jun 14 at 14:27
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    This is somewhat disingenuous. It's like saying that there's no such thing as "free shipping", because it's just hidden in the price. – Barmar Jun 15 at 14:23
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    The FDIC insurance could come from several places - the loan interest, the interest paid (or not paid) to the depositors, the fees paid by the depositors, or the bank's profit. This answer ignores that, and instead just assumes they all fall on the customer - which is patently not true for any student of economics. Profits will nearly always be reduced in part by fees (or costs), in highly profitable industries such as banking in particular. Given banks make so much off of deposits (via loans), they have a strong incentive to encourage deposits nearly regardless of the FDIC fees. – Joe Jun 15 at 15:08
  • The insurance means higher operating costs, but costs are not directly related to prices. If competition is high enough banks will take less profit to get business, if it is low they will raise their prices (in this case, lower interests for the customer) well beyond the cost. Also, there are ways which could justify insurances meaning lowering costs (for examples more customers depositing in the banks instead of keeping money at home due to fear -> lower expense per customer due to scale economies). It is not as simple as you make it sound. – SJuan76 Jun 16 at 21:22
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The FDIC receives no Congressional appropriations - it is funded by premiums that banks and thrift institutions pay for deposit insurance coverage and from earnings on investments in U.S. Treasury securities. The FDIC insures trillions of dollars of deposits in U.S. banks and thrifts - deposits in virtually every bank and thrift in the country.

https://www.fdic.gov/about/learn/symbol/index.html

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    This isn't said very well at all. The question isn't about congressional appropriations, and I feel this question takes a very roundabout way to fact-dump about FDIC, but doesn't go all that close to answering the question. – Harper - Reinstate Monica Jun 15 at 21:36
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    It's to the point and answers the question "who is paying the insurance premium?", citing an authoritative source. – 0xFEE1DEAD Jun 15 at 21:43
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    That doesn't say how the bank pays it and wow, this answer is entirely copypasta and does not have one single word of original work, I didn't catch that before. I don't think a good answer is what you think it is. – Harper - Reinstate Monica Jun 15 at 22:44
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You do.

Remember when you opened the account, and you didn't get a free toaster? (that used to be a thing, years ago: getting free stuff like that when opening a bank account).

Or they paid you a signing bonus to open the account, but it was only $100 not $125?

Or the monthly fee was not $8.50 but instead was $9?

That is you paying for deposit insurance. That money paid that money to FDIC or FSLIC instead of passing it on to you.

I have no idea what FDIC does with all those toasters :)

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    Sorry, this doesn't add any useful information that isn't already included in the existing answers. – 0xFEE1DEAD Jun 15 at 18:31
  • This is the only answer with a toaster joke, clearly it adds something new! On a serious note, I think there is value in recognizing the cost may come in forms other than interest rates and direct fees. – Darryl Jun 16 at 20:48

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