Does FDIC Insurance Offer Protection For Your Retirement?


In the past several years many banks failed, even well known names that were too big to fail have gone under. Depositors lost almost $245 million. These banks failed because they made careless investments with depositor’s money and exceeded the $100,000 limit of the Federal Deposit Insurance Corporation (FDIC).

The FDIC was formed after many banks failed during the Great Depression. It is a US government corporation created in 1933 to protect the deposits of member banks. Any depositor, especially with a deposit for retirement, should make sure the bank they choose is a member of the FDIC. If a FDIC member bank fails, what next?

The FDIC has currently about 117 banks on a problem list. They will not divulge the name of these banks, but they will give a list of bank rating sources. You can consult this list to find the strongest bank for your deposits.

There are three main ways to tell if your money is protected. What type of account, which bank and how much in each account. Standard accounts are insured for $100,000, but since 2006 a Roth IRA, a Simplified Employer Plan (SEP) and other types of retirement accounts are insured for up to $250,000. That includes all the interest your account will earn when it matures. The $250,000 limit is permanent for certain retirement accounts including IRAs, however, it will expire for all other deposits on December 31, 2013.

The FDIC does not insure accounts according to number of depositors or number of accounts, it insures depositor accounts according to the type of account it is. There are four types of accounts that are insured by FDIC. The single ownership account at $100,000, joint ownership at $100,000 per depositor including all checking, savings and CDs, certain retirement accounts at $250,000 per depositor including all eligible retirement accounts such as IRAs as well as testamentary accounts at $100,000 per beneficiary.

If your account is not a retirement account now, you may think about changing it before the date expires. You can set up an IRA for yourself or a joint return with your partner if you have had a job and paid taxes during the year and you are not over 70 ½ years old. You can set this up even if you have other retirement plans, but in that case you may not be able to deduct all of your contributions.

If accounts are set up properly, even in the same banking institution, it is possible to be insured for much more than $100,000. It depends on account ownership. Using the four types of accounts, money can be distributed to husbands, wives and children in several accounts all insured.

If you are considering moving your money to a safer bank or to set up different types of accounts to get more protection, make sure you follow the rules given by the FDIC so that you are not liable to pay taxes or penalties that you would normally pay when making a withdrawal.

Some things the FDIC does not insure, even if you bought them at the bank, are the contents of a safety deposit box, mutual funds or stocks and annuities. If your retirement is in any of these, even if it is in a FDIC member bank, it is not protected and could be lost.

It would be wise to find out exactly what insurance and laws apply to your retirement deposit. There are other laws to protect retirements including 401(k)s or other employer-sponsored retirement accounts. The Employee Retirement Income Security Act requires the money to be put in a trust or insurance contract so that it is separated from the company’s operating funds. This ensures the safety of the retirement fund if the company fails.

Retirements in FDIC insured banks are safe. There may be a tiny percentage of accounts at risk, but this can be ascertained with a little research into your own situation. Even though your deposit is insured, it is good to see if there is any other possible redistribution of your money, in several banks or in the same bank, where your insurance can be maximized.

This post was written by

jason – who has written posts on Budget Clowns.
Father of three and married to a lovely women. Always looking for ways to save money, and invest it properly for my children's future.

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