You’ve seen the phrase “FDIC-insured” hundreds of times, but have you ever wondered whether it applies to your retirement accounts?
The short answer is sometimes. The full answer requires a little more explanation.
What Does FDIC-Insured Mean?
The Federal Deposit Insurance Corp. (FDIC) was established in 1933 in response to more than 9,000 bank failures in the early 1930s. The corporation aimed to stabilize the banking system and quickly hit its mark—in 1934, for example, just nine insured banks failed.
This means the FDIC protects deposits in some types of accounts in case a bank fails. When people know their deposits are safe, they’re less likely to withdraw their money out of fear that the bank is in financial trouble. A stable base of deposits, in turn, helps prevent banks from failing in the first place.
Today, the FDIC insures up to $250,000 in deposits per person, per institution, per account ownership category.
Let’s break that down: Say you have $300,000 in a single deposit account—an account that’s just in your name—at an FDIC-insured bank. If that bank fails, the FDIC will step in after the failure and pay you $250,000.
You’re also covered for your share of another joint account that’s in your name, up to that same threshold of $250,000 per FDIC-insured bank. As an example, if you have $200,000 in a deposit account that’s just yours and $100,000 in a joint account with another person at the same FDIC-insured financial institution, your initial $200,000 will be covered plus $50,000 of the $100,000 in the joint account (as the bank assumes equal ownership unless told otherwise).
Note that this coverage does not apply to all accounts at an FDIC-insured institution.
Figuring Out If Your Retirement Account Is FDIC-Insured
Single and joint accounts aren’t the only account ownership categories that the FDIC covers. Others can include certain retirement accounts, revocable trust accounts and employee benefit plan accounts. However, that doesn’t mean all (or even some) of your retirement savings are covered by FDIC insurance.
First, figure out the type of retirement account you have and where it’s held.
A retirement account can come in any number of forms like a 401(k), a 403(b), a pension plan or an individual retirement account (IRA) and many more. The FDIC offers deposit coverage for most “self-directed” retirement accounts, which can include some funds in a 401(k) account and IRA. Self-directed means the account owner, rather than a plan administrator, has the right to make investment decisions. The FDIC also covers some funds in pension plans and all Section 457 plans—eligible deferred compensation plans provided by state and local governments—but does not cover 403(b) plans.
This coverage only applies to certain funds held in accounts at FDIC-insured banks—but note that not every financial institution that offers retirement plans is FDIC insured.
So while the FDIC does insure some funds in retirement accounts, an important caveat is that it doesn’t insure investments, including those in stocks, bonds, mutual funds, annuities, life insurance policies and crypto assets, as investments are always subject to risk. The FDIC does, as previously mentioned, insure deposits, including checking accounts, savings accounts, certificates of deposit (CDs) and money market accounts.
Unfortunately, chances are most of the money in your retirement account is invested in stocks, bonds or mutual funds—all of which the FDIC doesn’t cover.
But you may have some of your money in a retirement account in a deposit type that the FDIC does cover. If so, and if your account is at an FDIC-insured bank, then the amount in the covered deposit type is FDIC insured up to the applicable coverage limits.
You can also use the FDIC’s Electronic Deposit Insurance Estimator to check your insurance coverage based on your account title.
An Example of an FDIC-Insured Retirement Account
Let’s say you have a 401(k) with a total balance of $900,000 that’s held at an FDIC-insured bank. Your hypothetical balance is divided as follows: $200,000 is invested in stocks, $200,000 is invested in bonds and $500,000 is deposited in CDs. If the bank fails, the FDIC will cover $250,000 of the CDs but none of the investments.
If you had CDs worth $250,000 held in two 401(k) accounts at the same FDIC-insured bank, you would still only get coverage for a total of $250,000. To get more coverage, you would need to transfer the amount above the insured $250,000 to another FDIC-insured bank and make sure it’s in a deposit account or type that the FDIC covers.
Are Individual Retirement Accounts FDIC-Insured?
When it comes to FDIC insurance, IRAs are subject to the same rules as 401(k)s and pension plan accounts. Those rules also apply whether the IRA is Roth or traditional.
But remember, FDIC insurance only applies to deposits, not investments, held at FDIC-insured banks up to the coverage limits. If you want to be certain your IRA funds are FDIC insured, consider putting your money into an IRA CD or an IRA money market account. If you have more than $250,000 total in these deposit types at one bank, you’d need to transfer the amount over $250,000 to another FDIC-insured bank to ensure you have no uninsured funds.
FDIC Insurance and IRA Beneficiaries
Although IRAs allow you to name multiple beneficiaries, doing so doesn’t increase the amount of coverage on the account. It’s still $250,000 per person, per institution, per account ownership category.
However, you can keep an IRA in the name of the person it belonged to even after that person dies, thereby keeping that person’s coverage limit intact.
For example, Tyrone has an IRA CD worth $250,000 at an FDIC-insured bank. He designated his brother, David, as the beneficiary. David also has an IRA CD at the same bank that’s worth $200,000. After Tyrone passes away, David can maintain Tyrone’s account in Tyrone’s name to keep the $250,000 coverage limit. Doing so prevents the two accounts from being combined in David’s name, thus leaving $200,000 uninsured.
There’s one additional wrinkle here: revocable trusts—trusts that can be changed as long as the grantor is still living and of sound mind—on which the FDIC provides coverage of $250,000 per owner, per unique beneficiary. In other words, if an IRA is named a revocable trust, coverage limits go up based on the number of beneficiaries. If you have an IRA at an FDIC-insured bank, check to see if it will become a revocable trust upon your passing so you know the insurance limits your beneficiaries will enjoy.
Some of the rules regarding coverage limits for revocable trusts are changing in 2024, so be sure to contact your bank to better understand how the changes could affect you.
Are Annuities FDIC-Insured?
Although you can buy annuities through some banks, they’re not a bank deposit; annuities are actually insurance products. So, annuities are not FDIC-insured.
However, your investment is still protected in case the insurance company that sold it fails. Each state, the District of Columbia and Puerto Rico provide this coverage through nonprofit guarantee associations. Coverage limits vary by location, but each state provides a minimum of $250,000 per customer per insurance company. Washington, D.C., provides $300,000 in coverage, and Puerto Rico provides $100,000 in annuity coverage, so it’s a good idea to check your own financial institution to see what their coverage limits are.
Elizabeth Whalen is a freelance writer based in Seattle. She loves writing about business, financial services and sustainability.
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