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FDIC insurance now $250,000 on retirement accounts

Consumers who have retirement accounts at banks and savings institutions are getting increased protection against bank failure from the Federal Deposit Insurance Corp. A new federal law boosting coverage on retirement accounts to $250,000 took effect April 1, 2006.

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Retirement accounts held in credit unions also receive the same upgraded coverage under the National Credit Union Share Insurance Fund.

Coverage for insured savings, or general accounts, which tops out at $100,000, will stay in effect.

The legislators' decision to not raise the coverage limit for general accounts, from the current $100,000, was a foregone conclusion, says banking industry analyst Bert Ely of Ely & Co., in Alexandria, Va.

"There was strong resistance in the Senate, the administration and from [former Federal Reserve Chairman Alan] Greenspan. They wouldn't increase it, but they indexed it for inflation going forward, an obvious compromise."

The inflation adjustments for deposit coverage will be made to general and retirement accounts every five years beginning 2010.

The provisions are part of a much larger bill that President Bush signed Feb. 8, 2006.

The current $100,000 caps have been in effect since 1980, when they were boosted from $40,000. An earlier proposed version of this bill would have increased coverage for nonretirement accounts to $130,000.

"That would have been better than nothing, but for the length of time it's been at $100,000 it's a drop in the bucket. They should double it," says William Gooch, chairman and CEO of Community Bank of Elmhurst in Elmhurst, Ill.

"It would help level the playing field. We have people come in all the time saying they'll have to go to another bank." People who have in excess of $100,000 "are more willing to put it in a Bank of America and leave the excess uninsured than they would be to leave it in a community bank partly uninsured."

William Suplee, president of Paoli, Pa.-based Structured Asset Management Inc., agrees that even $130,000 would be inadequate.

"If they increased deposit insurance to keep pace with inflation they should have increased it to $235,000 for general accounts."

It's important to understand what's covered by the FDIC. Although the coverage limit is being raised for retirement accounts, the type of assets that are covered isn't changing.

What's covered by FDIC and what is not
Covered by FDIC insurance
Not covered by FDIC insurance

Understanding what's covered and what isn't might be especially important in light of the extra coverage being given to retirement accounts as many banks offer stocks, bonds and mutual funds to customers with those accounts. While institutions may strive to make it clear that these products are sold in a separate area of the bank and don't have FDIC coverage, some customers might have difficulty making that distinction, especially when the separate area of the bank may simply be a roped-off desk or an office.

If FDIC coverage is inadequate for your general or retirement account, there are ways to increase coverage by setting up deposits in different categories of legal ownership. These categories are insured separately up to the maximum allowed. Here's an example of how a married couple could insure $1.1 million at one bank when the new reform legislation begins.

  • Husband and wife each have $100,000 in an individual account.
  • The couple has $200,000 in a joint account.
  • Each has $250,000 in an individual retirement account.
  • Each sets up a $100,000 revocable trust account, payable on death, naming each other as beneficiaries.

For more information on setting up these accounts and checking to see if your money is covered, visit the FDIC's Web site.'s corrections policy
-- Updated: March 15, 2006
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