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