With the signing of the Helping Save Their Homes Act of 2009, President Obama has extended the $250,000 “temporary” limit on insured bank and credit union deposits through the end of 2013.

But why so medium term? Why not go all the way and make it permanent.

If $100,000 was good enough in 1980 - the last time a permanent change was made - then $250,000 should be good enough for 2009. And, on an inflation adjusted basis from 1980, that's right where it should be. (See the table below.)

Savers and retirees, with lots of money to secure, can now safely hold large sums of money in bank accounts and term deposits (CDs and Share Certificates) for another few years.

Regardless, the increased limit is a win-win.

• Consumers win because the increased limit and extension passed last fall sponsored "short-termism" with a 12/31/2009 expiry. Given the turmoil in the banking system at that time, why would anyone have bought a large long-term CD with no insurance.
• Banks win because the extended time period will allow them to heavily market long-term (and historically low-yielding time deposits) to shore up their capital and give comfort to lending.

Here’s the catch. Banks win double.

With rates at historic lows and consumer fear still prevalent, any reassurance for securing more money for a longer period of time will lock in low cost, medium-term financing for your friendly-neighborhood banking giant (or community bank or credit union).

If inflation roars back, as many expect it will, large savers will be left collecting meager yields on panic-induced deposits. The banks, of course, will let you withdraw your money but not without incurring fees or lost interest. And banks love to borrow at low rates from consumers and lend at variable rates (which are bound to go up) to businesses and other consumers. 

But does the “temporary” increase actually make any sense at all? I plugged in the historic FDIC-insurance limits into The Inflation Calculator and was surprised by the results. Only based on the 1980 limit is $250,000 the right number. Of course, a lot of other considerations and politicking go in to picking the number, but at least those big savers can feel safe for a little while longer.

How much do you hold in your insured bank accounts?