Banks Well Kept Secret

Today, over 25 million safe deposit boxes are leased at financial institutions across the United States.

Over the last decade, the US has experienced an exceptional number of natural and man-made catastrophes. From the terrorist attack on September 11th, through Hurricanes Katrina and Sandy, and numerous fires and floods box holders have suffered substantial losses to some or all of their most valuable property.

Unfortunately, most box holders incorrectly believe their property, like their savings and checking account deposits, is fully insured by the FDIC or their financial institution, and when a loss does occur; customers have no recourse to recover their economic loss.

The extent of this misunderstanding was highlighted recently in research polls by Survey USA. In one of the most comprehensive, independent research polls of box holders conducted in the last decade, over 50% of box holders incorrectly believed that they were fully insured by their bank or FDIC. The average age of the respondent was 47, and the median family income was over $75K, so these box holders reside in one of the critical market-segments targeted by all banks.

This figure is startling for such a mature product, and suggests the industry’s reliance on disclaimers in the customer’s rental agreement, notices in branches, and on web sites are ineffective. In the post Dodd-Frank, Consumer Financial Protection Bureau environment, this level of customer misunderstanding also represents a potential compliance issue.

So how does a bank address the misunderstanding? A growing trend among banks is to offer their box holders the ability to choose between renting an insured safe deposit box, where the contents is protected by insurance up to a certain dollar amount, or leasing a box without insurance. This option eliminates any ambiguity, and allows the box holder to make an informed decision on whether the insurance is needed. From a compliance standpoint, the OCC recognizes the benefit of this approach and has explicitly authorized banks to offer insurance for the box contents.

Not only is offering an insurance option a good compliance tool, it is also good business. When questioned, 55% of box holders in the USA Survey said that it was important that their financial institution offer an insured box, and 40% of those said they would move their entire banking relationship from an institution that did not offer insurance to one that did. That number increased to 80% among younger box holders.

Whatever the reason, the institutions offering an insured box option have chosen to do the right thing for their customers. For now though, many customers are unaware that their contents are exposed and some institutions are content to keep it that way.