FDIC Insurance Higher on Retirement Accounts

Here’s a bit of FDIC trivia for you… Most of us know that the FDIC insures deposit accounts up to $100k. But did you know that a year ago they increased coverage on certain retirement accounts held at FDIC-insured institutions to $250k? This higher insurance covers Roth IRAs, SEP-IRAs, SIMPLE IRAs, Keogh accounts, 457 accounts, and self-directed employer-sponsored “defined contribution plans” including 401(k) accounts.

Here’s the deal:

Under the FDIC’s new rules, which took effect on April 1, 2006, all of your deposits at the same insured bank that are in this broad category of retirement accounts are added together and the total is insured up to $250,000. Your retirement accounts also are separately insured from any other deposits you may have at the same institution.

However, it’s very important to keep in mind that FDIC insurance applies to deposits, not investments:

The FDIC protects checking accounts, savings accounts, CDs (special accounts you’d typically hold for anywhere from one month to five years) and other types of deposits. The FDIC does NOT insure the money you invest in products such as mutual funds, stocks, bonds, life insurance policies and annuities – even if you purchased them from an FDIC-insured institution.

That being said, if your account qualifies and you bank or savings institution were to fail, the FDIC insurance would cover your losses (again, in deposit accounts only) dollar for dollar, including principal and accrued interest, up to the insurance limit.