Are your retirement accounts FDIC insured?

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IndyMac FDIC

Photo Credit: LA Times

As more banking institutions become insolvent, it is important to know which accounts are insured against bank failure – and which ones are not. In fact, the “name” of your account may determine whether or not it is insured.  Money market accounts or money market funds: one of those two accounts is not FDIC insured, but without looking at the fine print, you would never know.  

Below is a list of many different investment vehicles and whether they are covered by FDIC insurance. In times like these, it’s important to know how much you would expect to see in insurance if the investment or bank that holds the investment fails.

How much does FDIC cover, and how does it work?

All accounts that are insured by the FDIC are insured up to $100,000 per person per bank. For example, if you were to hold $250,000 of assets at one bank, only $100,000 would be guaranteed. The remaining $150,000 would have to be recovered from the bank before you would be entitled to some type of refund on the account.

Recently, IndyMac was found to be insolvent, and thousands of people will only be insured up to $100,000. After that amount, the returns from the asset sale of IndyMac will be used to refund investments.

Savings accounts and checking accounts

Both of these accounts are covered up to $100,000 by the FDIC insurance program. If you were to have more than $100,000 in these accounts, the extra would not be directly insured; instead, the remaining amount would come later as a refund if the assets of the bank are enough to insure your extra amount. To protect yourself from this risk, consider opening an account at another bank if you happen to have more than $100,000.

Money market accounts and certificates of deposit

Money market accounts (not money market funds) and certificates of deposit (CDs) are insured up to $100,000 by the FDIC. This fact surprises many, as these are considered the highest yield accounts the bank has to offer. For long term cash storage, a CD is the best bet, as it pays the most, while still protected by the FDIC.

Stocks, bonds and mutual funds

These investments are not covered by the FDIC in any way, even if sold or marketed at a banking institution. In the case of a brokerage failure, the SIPC, a completely different federal insurance program, covers the losses. Keep in mind that you are not protected from loss in the stock market, but from loss in the case a brokerage firm goes under.

The SIPC is actually better than the FDIC in many ways, as it protects the overall equity balance of brokerage accounts or trading platforms up to $500,000.

Money market funds

Money market funds are not protected by FDIC insurance. Because money market funds are fully vested at all times, the SIPC does not cover these amounts either. Money market funds should be avoided because of the lack of insurance, as well as the little to no difference in yields from money market accounts. Watching the fine print will save you some money here.

Annuities

Annuities are very popular with retirees, but have no insurance backup from the FDIC. These products, while sold at banking institutions and even some brokerage houses, are not covered by the FDIC.

Consider the risk

When buying any investment vehicle, it is important to read through the fine print and terms and conditions. In many cases, just a few simple words can easily wipe away the shot of any government backing (such as the difference between a money market account and money market fund). Consider the best investment while weighing the odds of a bank failure. In markets like today, it may be wise to stay away from investments that provide small returns but are not backed. Instead, consider a certificate of deposit or an investment in a money market account, which is government backed, while providing returns that are much higher than your average bank account.

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