FDIC Insurance

I never imagined that I would be writing an article about FDIC Insurance. However, given the recent turmoil in the financial markets, especially with Freddie Mac and Fannie Mae splashed across the front page of the Post-Gazette and becoming household names, I find the need to at least help people understand the safety of their bank deposits.

At hopefully the height of fearful emotions, it is not unnatural that one should wonder if they should pull their money out of stocks and bonds and even bank accounts. I have used other articles to explain why it is not wise to sell your stocks and bonds in this economic environment so this one will focus on why you should not panic when it comes to bank deposits.

To start, the FDIC (Federal Deposit Insurance Corporation) is an independent agency of the United States government which insures most banks. This is the insurance that protects you dollar for dollar including principal and accrued interest (up to insurance limits) in the event your bank fails. Historically, insured deposits are available within a few days. It’s good to know that since the start of the FDIC in 1933, no depositor has ever lost a penny of insured deposits.

What are insured deposits? The FDIC insures all deposits at insured banks, including checking accounts, savings accounts, money market deposit accounts and certificates of deposit (CDs) up to the insurance limits. Investment deposits such as stocks, bonds and mutual funds are NOT insured, even if purchased through a bank’s securities department.

The basic amount of insurance is $100,000 per social security number per bank. However, if you have an individual retirement account (IRA) at the bank, you are insured up $250,000 per depositor per insured bank. The IRA must be invested in a money market fund, savings account or even a certificate of deposit. An IRA that is invested in securities as noted above is not covered by FDIC insurance. Examples of retirement accounts that are insured include traditional IRAs, Roth IRAs, Simplified Employee Pension (SEP) IRAs and Savings Incentive Match Plans Employees (SIMPLE) IRAs. In addition, Section 457 deferred compensation plans, self-directed defined contribution plan accounts and self-directed Keogh plan accounts are also insured as long they are in bank deposit instruments.

So for 99% of us, there is no need to run to the bank and withdraw your money. The risk of keeping your money under your mattress (or anywhere at home for that matter) far outweighs the risk of bank failure. Theft, fire, flood and inflation are risks that are more likely to erode your savings under the mattress just to name a few.

If you need additional information regarding your bank’s FDIC insurance coverage call 1(877) 275-3342. You can also visit www.fdic.gov or www2.fdic.gov/edie for additional information including an online calculator to determine your own coverage.