FDIC boosts insurance for retirement accounts

The increase, which will take effect April 1, is the result of a new law boosting federal deposit insurance coverage for the first time in more than 25 years.

Basic insurance for other deposit accounts remains at $100,000.

“The increase in deposit insurance coverage on certain retirement accounts is a significant change,” said Martin J. Gruenberg, acting FDIC chairman, in a news release. “The FDIC is committed to helping depositors understand clearly the change that has been made and how it will affect the deposit insurance coverage for which they are eligible.”

Under the FDIC’s new rules, up to $250,000 in deposit insurance will be provided for the money a consumer has in a variety of retirement accounts, primarily traditional and Roth individual retirement accounts, at an insured institution. Also included are self-directed Keogh accounts, 457 plan accounts for state government employees, and employer-sponsored defined contribution plan accounts that are self-directed and are primarily 401(k) accounts. In general, self-directed means the consumer chooses how and where the money is deposited.

In addition, the IRAs and other retirement accounts that will be protected under the new rules are insured separately from other accounts at the same institution that continue to be insured up to at least $100,000.

The new law also established a method by which the FDIC would consider an increase in the insurance limits on all deposit accounts (including retirement accounts) in the future, but only every five years starting in 2011. Any such increase would be based, in part, on inflation. Otherwise, accounts will continue to be insured as described above.

Federal insurance protects depositors against loss if a banking institution fails.

The Independent Community Bankers of America has applauded the FDIC for its implementation of the new rules.

“Higher insurance coverage for retirement accounts is one of the many ways community banks can help their customers have a safer and more stable retirement,” said Terry J. Jorde, ICBA chairman, in a separate release.