The Federal Deposit Insurance Corporation (FDIC) is hoping to receive permission from Congress to insure greater amounts of deposits. Currently, individual deposits up to $100,000 and retirement accounts up to $250,000 are fully covered by the FDIC.

Even before this proposal was drafted, savers were been able to obtain additional coverage by titling their accounts in certain ways. However, savers were often confused by the different types of accounts and bank employees weren’t always very clear in explaining the rules.

Under the new proposal, up to $250,000 in deposits could be insured and the cost of the increased coverage would be incurred by the member banks in the form of higher premiums. This would be good news for investors who have previously distributed their money across many banks in order to obtain full insurance protection. Mutual fund companies, however, are generally not in favor of this proposal because they think it might give banks an unfair operating advantage.

Some questions and answers about the proposal to increase federal deposit insurance to cover up to $250,000 in ordinary bank accounts:

Q. What are the current limits on deposit insurance?

A. The basic insurance amount is $100,000 per depositor per bank. Individual retirement accounts, or IRAs, held in banks are insured up to $250,000. In addition, you may qualify for more than $100,000 in coverage at one bank if you have deposit accounts in different ownership categories, such as single accounts, retirement accounts, joint accounts and revocable trust accounts.

Q. When were the limits last raised?

A. Legislation enacted in February 2006 raised the $100,000 insurance ceiling on retirement accounts to $250,000.

The $100,000 limit for regular deposit accounts has been at that level since 1980, when it was increased from $40,000. Taking inflation into account, $100,000 in 1980 would be worth nearly $266,000 today, according to Labor Department data.

The banking industry has lobbied for an increase in the limit. Smaller community banks said it would help them compete for deposits with bigger institutions and Wall Street investment firms.

Q. How would the proposed increase be paid for?

A. U.S. banks and thrifts are charged premiums to make up the insurance fund, which is currently about $45.2 billion, down from about $53 billion at the end of last year. Banks and thrifts would be expected to pay higher premiums to increase the fund.

Q. What do officials hope to accomplish by increasing the insurance limit?

A. “It would be helpful in calming frayed nerves,” said Mark Zandi, chief economist at Moody’s Economy.com. “Depositors are scared.”

Q. What has happened in cases where a bank closes, and people have money in accounts that exceeds the insurance limits?

A. Those people essentially become creditors of the failed bank. They will eventually recover some of their money, but the amount can range anywhere from 40 cents on the dollar up to a full 100. Recovery of the money can take months.

When IndyMac Bank, a large savings and loan, failed in July, there were an estimated $541 million in deposits that exceeded the insurance limits, out of the total $19 billion in the bank.

Q. Would the change be permanent?

A. The higher limit, $250,000, would be effective only until Dec. 31, 2009. After that, barring further congressional action, the limit would revert to $100,000.

(FDIC / Boston.com / IHT / AP)