New Rules from FDIC Enhance Retirement Accounts 3/4/07

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New Rules from FDIC Enhance Retirement Accounts 3/4/07

Stewart H. Welch III, CFP, AEP
Founder, The Welch Group, LLC

New Rules from FDIC Enhance Retirement Accounts



“New Rules from FDIC Enhance Retirement Accounts”


Many people love the sense of security they get when they invest their money in a bank.  Certificates of Deposit (CDs) have been a particular favorite for decades. This sense of security comes from the fact that the Federal Deposit Insurance Corporation (FDIC), an agency of the federal government, guarantees that your money is safe.  But is it really?

Some people are under the mistaken impression that all banks are ‘safe’.  In fact, many banks are not backed by the FDIC.  In order to become a member bank, banks must meet stringent requirements, something that is expensive and consequently, many banks choose not to do. Therefore, you must first make certain that your bank is a member if you want that government guarantee.

Also, people often forget that the FDIC insurance has limits.  In the past, the limit was $100,000 of deposits in a single bank.  This meant that if you had more than $100,000, you had to get ‘creative’ if you wanted to use a particular institution.  The solution was to open several different accounts under different depositor titling.  For example, you could open one account for $100,000 in your name, then another one in your spouse’s name, then a third in your joint name as well as accounts for each of your IRAs.  Ultimately, people with a lot of money ended up having to use a number of different banks in order to be certain that their money was fully insured.

Finally, after 25 years, Congress has raised the FDIC limits on certain types of accounts.  The federal government has long recognized the importance of encouraging personal retirement accounts.  After all, those people who do not save adequately for retirement end up dependent on government support systems.  The new limits are $250,000 for Traditional and Roth IRAs, Simplified Employee Pension Plans (SEP) and Savings Incentive Match Plans for Employees (SIMPLE).  Also included are ‘self-directed’ plans including Keogh Plans, state government 457 Plans and 401k Plans.   Self-directed means the consumer decides how and where his or her money is invested.

Today many banks offer a wide variety of investment options.  Many of these products pay a sales commission to the banker and the bank so it is vital that you clearly understand which bank investments are covered by FDIC insurance and which are not.  Types of accounts that are insured include:

  • Checking accounts
  • Savings accounts
  • Money Market accounts
  • Certificates of Deposit

FDIC insurance does not cover bank-sold mutual funds, annuities, life insurance, stocks and bonds so if a bank representative recommends an alternative investment, be sure you understand if it is insured.  It is important to note that no depositor covered by FDIC insurance has ever lost money due to a bank failure.  The FIDC insurance covers your deposits including principal and interest up to the stated limits.  For more information go to the Resource Center at and click on FDIC Insurance. According to the manager of one of the more prominent Credit Union’s in Dane County, all of these new changes also apply to credit unions insured by the National Credit Union Administration (NCUA).