Congress has raised the limit on federal deposit insurance coverage for the first time in more than 25 years. This coverage protects against loss if a bank fails. But the higher insurance limit only applies to certain types of retirement accounts that people can have at banks and savings associations insured by the Federal Deposit Insurance Corporation (FDIC) and at credit unions insured by the National Credit Union Administration (NCUA).
The FDIC wants people who use banks to know what has changed and what hasn't.
Some retirement accounts at banks and savings and loan associations that are insured by the government will soon be insured up to $250,000, up from $100,000 before. Most traditional IRAs and Roth IRAs are affected by the higher insurance coverage (Individual Retirement Accounts). Also included are self-directed Keogh accounts, "457 Plan" accounts for state government employees, and self-directed "defined contribution plan" accounts sponsored by an employer, which are mostly 401(k) accounts. Self-directed usually means that the customer decides how and where to put the money.
Under the FDIC's new rules, which go into effect on April 1, 2006, all deposits in this broad category of retirement accounts at a single bank are added up and the total is insured up to $250,000. This is separate from any other deposit accounts you may have at the same bank.
With FDIC coverage for retirement accounts raised to $250,000, more Americans who depend on banks for safety and ease of access will know that more of their money for retirement will be completely safe if their bank fails. There is also the added convenience for people who, in the past, may have had to go to more than one institution to make sure their retirement deposits of more than $100,000 were fully covered.
Other deposit accounts are still insured for at least $100,000. But, just like before, there are ways to get more than the basic coverage at an insured institution.
For example, four different types of accounts—checking and savings accounts in your name only that are not retirement accounts; checking and savings accounts held jointly with other people; business accounts; and employer-sponsored pension or profit-sharing plans—each qualify for separate insurance coverage of $100,000 (up to $400,000 total).
Also, if certain conditions are met, trust accounts may be able to get separate insurance coverage of $100,000 per beneficiary, not per depositor. And don't forget that under the new rules, your self-directed retirement accounts at the same bank are insured by the FDIC up to $250,000, even if you have other accounts there. This can be hard to understand, so contact the FDIC as shown below to find out how to qualify for more insurance coverage.
The insurance limits could go up in the future, but not before 2011. Starting in 2011, the new law sets up a way for the insurance limits on all deposit accounts, including retirement accounts, to go up every five years, based in part on inflation. If not, your accounts will continue to be covered the same way they are now.
